Financial Instruments

Financial instruments are contractual agreements that represent monetary value and can be traded in financial markets. They can be classified broadly into:

• Debt instruments: Loans, bonds, and notes payable that represent borrowing arrangements.

• Equity instruments: Shares or ownership stakes in a business.

• Derivatives: Contracts whose value derives from underlying assets, such as options, futures, or swaps. Financial instruments are vital tools for raising capital, managing risk, investing, and facilitating transactions. Their valuation depends on market conditions, creditworthiness, underlying asset performance, and economic outlook. Proper classification and accounting of financial instruments are critical for risk management, financial reporting, and regulatory compliance.