[Solved] Consider the following: Exchange-Traded Funds (ETF) Motor vehicles Currency swap

Q54. Consider the following:

1. Exchange-Traded Funds (ETF)
2. Motor vehicles
3. Currency swap

Which of the above is/are considered financial instruments?

1. 1 only
2. 2 and 3 only
3. 1,2 and 3
4. 1 and 3 only

Answer: 4

Financial instrument

• A financial instrument is a real or virtual document representing a legal agreement involving any kind of monetary value.

Financial instruments may also be divided

• Debt-based instruments: loans made by an investor to the owner of the asset. Short-term debt (one year or less) like Treasury bills (T-bills) and commercial paper.

• Equity-based instruments means

ownership of an asset. These are most often stocks, which can be either common stock or preferred shares.

• Exchange Traded Funds (ETFs) and mutual funds may also be equity-based instruments.

• Foreign exchange instruments include derivatives such as forwards, futures, and options on currency pairs, as well as contracts for difference (CFDs).

• Motor vehicles are tangible physical assets. They can be owned, bought, and sold, but they do not represent a financial claim or contractual agreement. While motor vehicles can be financed through loans or leases (which are financial instruments)

• The vehicles themselves are not classified as such. So, option 2 is incorrect.

• Hence option (d) is the correct answer.