Financial instruments are ... Financial instruments of financial policy. Securities

The world financial market is a complex education, which in many respects is subject to its own laws and development principles. However, some of its fundamental features have long been studied and brought to a common denominator. Financial instruments are no exception. This is a real document or an officially registered electronic form, which can consolidate some kind of legal agreement.

A slightly different term is adopted in economic science. So, according to him, financial instruments are such a contract that ensures the creation of a financial asset from one of its parties, as well as a financial liability (equity instrument) - from another participant. They can be both legal entities and individuals.

What is what?

The concept of them is quite diverse. It is generally accepted that financial instruments include:

• Financial asset. This is how money is called, the right to demand them in some situation, as well as the provision of an equity instrument or some other financial instrument.
• Financial liability. Accordingly, the so-called contract, in which one party may require the financial assets of another participant.
• Equity instrument. This is also a contract that gives the right to receive part of the organization's assets.

Basic concepts

Under IAS 32, assets include all of the company's cash foreign exchange, customer debt, investments and securities. The obligations include accounts payable from suppliers, as well as all other types of such debt. The company must recognize the existence of its assets and liabilities only when it is one of the parties to the contract (financial instrument).

All these basic financial instruments are valued only at fair value. As a rule, it recognizes the value of the paid-in asset or the company's obligation.

About fair value

How to determine the size of this value as objectively as possible? To do this, the cost of such a transaction is used, which other parties are willing to commit, well aware of the market obligations and the value of the company. The best and easiest way is to use the price of financial assets in free markets.

What if I do not have this option? In this case, one must use any of the generally accepted evaluation methods. Their common essence is the same: two parties are interested in a similar transaction, after which its possible value is calculated.

It also provides for the use of market information from independent parties that have recently made similar transactions or who are interested in them, and carries out an objective analysis of discounted cash flows. It is important to use a suitable model for determining the price of options, since otherwise the market for derivative financial instruments will not be able to form a truly objective asset value.

Classification of financial assets

To simplify all subsequent assessments (if necessary), all identified assets are classified according to the following scheme:

• Assets that are to be measured based on the fair value.
• All investments that must be withheld until full repayment.
• Accounts receivable and all outstanding loans at the enterprise.
• All available financial assets that are currently available for sale.

Let's consider all these positions in more detail.

Loans and receivables

Both the loan and the receivables assume the transfer of goods or net cash to the debtor, provided that the latter does not intend to resell the debt to third parties. Their valuation is carried out at amortized cost.

This means the price of a financial instrument, from which the amount of debt was deducted or the write-off of bad debts (full or partial) was made. Most often, it is calculated using the effective interest rate, as it allows more adequate to determine the value of an asset, even if the latter is partially depreciated.

This makes financial instruments more efficient, and their acquisition is more profitable for the company's investors.

Assets held for sale

All assets that can be measured at fair value and held for trading can be classified as follows:

• Acquired for the purpose of a reverse sale in the short term.
• If they are part of a financial portfolio, which again is intended for sale in the short term.
• If the asset is a production tool.

Obligations and rules for their use

No organization has the right to enter or withdraw financial instruments into a category measured at fair value. And this applies to the entire period of ownership of the instrument or at the time of its release.

If we talk about investments that are held until they are repaid, they are referred to assets with fixed payments, as well as their maturity. This applies only to those investments that the organization is not only firmly committed to, but also capable of retaining. By the way, debt securities, which have a variable interest-rate, can also belong to this category.

Intention to withhold

It is valued both when the asset is acquired, and at each reporting date. And the intention to hold assets is evaluated by much more stringent criteria, if we compare it with the intention to sell them at the moment. The fact is that all organizations that act differently cause doubts about the advisability of long-term cooperation with them, and therefore they can automatically be considered unreliable customers.

All this can lead to the formation of a special penalty portfolio, all investments from which the company must keep until they are fully repaid. All other assets are strictly prohibited from applying the definition of "held-to-maturity", and the restriction may be extended immediately to three years after purchase. If the company already has such instruments of the financial market, they should be transferred to the category sold at fair value with the right of subsequent sale.

The profit or loss that was received as a result of such actions should be immediately taken into account in the assets. Only after (!) The end of the ban period the organization has the right to independently assign to investments or other funds the concept of "held until maturity". Simply put, an independent evaluation of financial instruments is not carried out in this case. In case of violation, penalties may be imposed on the company.

They can express themselves in a complete ban on investing production, as well as in other measures, which in case of use will seriously undermine the economic position of the company.

What financial instruments can be recognized as being acquired for sale at fair value?

In this case, the financial instruments of the financial market include all the following concepts and definitions:

• All obligations of the derivative form, which under no circumstances can be used as a hedging instrument.
• If they were taken to supply securities or other assets in the event that the latter were received on condition of "short" positions.
• If they were taken with the intention of buying back in the very near future.
• All obligations that can be used only in association with each other. In addition, evidence is required that the organization has already used them in the past, and as a result of such actions, it has made a profit.

All liabilities that are held to be held for trading at fair value must immediately appear in the future when all the company's profits and losses are calculated for a specific period. All other financial instruments of the financial market can be measured at amortized cost, with the exception of one point. This refers to those liabilities that arose when the financial asset can not be recognized as being "sold at fair value," and it should be used in the future.

In this case, such an obligation must be assessed subject to the following conditions:

• If it is a collection of rights and obligations that the organization has retained from the previous owner, previously measured at amortized cost.
• If earlier it was valued at fair value, but was transferred to the organization on some separate terms.
• If the obligation is a contract with the bank for a loan on interest, which is below market.

In this case, it should be evaluated according to the highest value of the following indicators:

• The amount that has been determined in strict accordance with IAS 37 "Estimated liabilities, contingent liabilities and contingent assets".
• The initially recognized amount of the fair price, even taking into account the previously deducted depreciation value.

Classification of the concept

Today, economists say that all financial instruments can be divided into exactly two large categories. In the first case, these documents should be based on real capital, giving possession of some assets (shares, for example), or they represent the debts of one company to another. In this case, bonds are issued. However, most often they are all considered in a single context, as financial markets and financial instruments in this respect are practically not divided.

Each such tool is best viewed in the context of a "unit" of money-capital. And each element has its own unique features, structure and conditions of use. It is their wide variety that ensures the rapid movement of capital in the world financial market and its further development. In recent years, the market of financial instruments is developing the more actively, the more promising sales directions are opened for producers in South-East Asia.

And now let's look at one of the types of securities that include the notion of "financial instruments". These are shares. There are simple and privileged varieties of them.

Common shares

They not only give the right to vote in the company, but also allow the holder to receive a portion of the profits from the entire organization. Of course, this variety is not only the most widespread in the entire financial market, but also the most interesting for investors. Such securities are a stable and universal tool, and therefore the formation of their value is influenced by ordinary market factors. All stock markets allow not only buying them directly, but also making profit by using the services of brokers or broker companies.

Some advantages are provided solely by these financial instruments of financial policy. For example, the right to vote, to which many are treated with some disregard, allows lobbying for the promotion of their candidates to the Board of Directors of the company, and this is an extremely important tool not only for the economy, but for politics.

Among other things, the size of dividends on classic shares directly depends on the profitability of the company. Successfully investing, you not only get certain leverage, but also a solid profit. Of course, do not forget about the growth of their immediate value. This happens when the economic state of the enterprise improves dramatically. However, the cost of ordinary shares can also drop sharply, which will lead to losses of investors.

Preference shares

This is a class of securities that provides extended rights to receive dividends and profits from sales. In addition, their owners receive dividends faster than holders of ordinary shares. At the same time, one should not forget that voting rights of holders of this kind of securities do not exist, and therefore they can not directly influence the management of the enterprise. These are financial instruments of financial policy, which have a very limited range of real applications.

In general, the exact list of the advantages that privileged shares give depends strictly on the characteristics of a particular company. The very essence of this type of financial instruments is that these shares combine the characteristics of debt documents (as in the case of bonds, there is a fixed percentage of dividends), as well as property instruments. The latter circumstance indicates that these types of financial instruments allow you to receive income already because of the market growth in the value of the shares themselves, which do not even need to be sold.

Of course, they have their advantages and disadvantages. The advantage is the expanded right to receive profit and dividends. In addition, you do not have a vote, and the value of preferred shares is growing much more slowly than the price of ordinary shares.

Thus, financial instruments are a powerful tool both for profit making and for impact on enterprises.