Financial Instruments

Question 1

Define a Financial Instrument

Answer 1

Is a contract that gives rise to a financial asset of one entity and a financial liability/ equity instrument of another entity.

Question 2

Define a Contract

Answer 2

An agreement between two or more parties with clear economic results. The parties have limited discretion to avoid their contractual obligations, and the contract is usually enforceable by law.

Question 3

Define a Financial Asset

Answer 3

It is : Cash; an equity instrument of another entity; a contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity.

Question 4

Define an Asset and an Economic resource

Answer 4

A present economic resource controlled by an entity as a result of past events.

Economic resource: is a right that has the potential to produce economic benefits.

Question 5

Define a Financial Liability

Answer 5

Any liability that is: a contractual obligation to deliver cash or another financial asset to another entity; a contractual obligation to exchange financial assets/ financial liabilities with another entity under conditions that are potentially unfavourable.

Question 6

Define a Liability

Answer 6

A present obligation to transfer an economic resource as a result of a past event.

Question 7

Define an Equity instrument

Answer 7

is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.