global financial markets - is a complex entity which is largely subject to its own laws and principles of development.However, some of the basic features of it has long been studied and shown to a common denominator.Are no exception as financial instruments.This is a real document or an officially registered electronic form that can fix some legal agreement.
In economics adopted a slightly different term.So, according to him, the financial instruments - is a contract that provides a financial asset of one of its sides, as well as financial liabilities (equity instrument) - the other party.They can be both legal and natural persons.
What is that?
notion of them quite diverse.It is considered that the financial instruments are:
- financial assets.So we call money, the right to require them in any situation, as well as providing an equity instrument or some other financial instrument.
- financial obligations.Accordingly, the so-called agreement in which one party may request the financial assets of another party.
- equity instrument.It is also a contract that gives the right to receive part of the organization's assets.
Concepts
Under IFRS (IAS) 32, assets are all available at the company's cash foreign currency funds, trade receivables, investments and securities.The obligations also include payables from suppliers, as well as all other kinds of such debt.The Company is obliged to recognize that it has assets and liabilities only when one of the parties to the contract (the financial instrument).
All these basic financial instruments are measured at fair only its value.Generally, it recognizes the value of an existing asset or paid the firm commitments.
the fair value
How to determine the size of this cost as objectively as possible?For this purpose, the cost of such transactions, which are willing to commit the other hand, well-informed about the market and the cost of the liabilities of the company.Better and easier to just use the price of financial assets on the open market.
What if this is not possible?In this case, we have to use any of the generally accepted valuation techniques.Overall their essence is the same: take two parties interested in the same transaction, then it is calculated the possible cost.
envisaged the use of market information from third parties, which have recently made similar deals or were interested in them, made an objective analysis of discounted cash flows.It is important to use a suitable option pricing model, as otherwise the derivatives market will not be able to form a truly objective value of the assets.
Classification of financial assets
To simplify subsequent evaluation (if they need them), all identified assets are classified as follows:
- assets that should be evaluated on the basis of the fair value.
- All investments that must be withheld until the full repayment.
- Accounts and all existing enterprise outstanding loans.
- All available financial assets that are currently available for sale.
Consider these items in more detail.
loans and receivables
and loans and receivables involve 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 assessment is made based on amortized cost.
This refers to the price of a financial instrument, which was deducted from the amount of the debt or whether it was written off bad debts (full or partial).Most often it is calculated using the effective interest rate, as this allows more adequately determine the value of an asset, even if the partial depreciation of the latter.
This makes the financial instruments more effective, and their acquisition - profitable venture for investors.
Assets held for sale
All assets that can be measured at fair value and are intended for trade may be divided as follows:
- purchased for resell in the short term.
- If they are part of a financial portfolio, which, again, is for sale in the short term.
- If the asset is a production tool.
obligations and rights of use
No organization has the right to impose financial instruments are measured at fair value, or remove them from it.And this applies to the entire period of ownership instrument or at the time of its release.
Speaking about investments that are held to maturity, they are considered to be assets with fixed amounts of payments, as well as maturity.This only applies to those investments that the organization is not only committed to, and capable of holding.By the way, debt securities, which have a variable interest cost may also fall into this category.
intention to retain
It is ranked as the acquisition of an asset, and at each reporting date.And the intention to hold the assets is estimated at a much more stringent criteria when compared with the intention of selling them in the moment.The fact that all the organizations that act differently, cast doubt on the feasibility of long-term cooperation with them, and therefore can be automatically considered unreliable clients.
All this can lead to the formation of a special penal portfolio, all investments from which the company is required to withhold up to their full maturity.All other assets is strictly prohibited to use the definition of "held to maturity", the limit can be extended once for three years after purchase.If a company already has this kind of financial market instruments, they must be translated into the category of selling at fair value with the right of subsequent sales.
gain or loss that had been obtained as a result of these actions, you should immediately take into account the assets.Only after (!) The expiration of the ban the organization has a right to assign investment or other means of the concept of "maturity".Simply put, an independent measurement of financial instruments in this case is not made.In the event of a company may be subject to penalties.
they express may invest a total ban on production, as well as other measures in the case of seriously undermine the economic situation of the company.
What financial tools can be recognized are purchased for sale at fair value?
In this case, the financial instruments of the financial market to include all the following terms and definitions:
- All obligations of the derivative forms that under no circumstances can not be used as hedging instruments.
- If they were taken for the supply of securities or other assets in the case where the latter were obtained under the condition of "short" positions.
- If they have a plan to buy back in the near future.
- all obligations that may only be used in association with each other.In addition, the required proof of the fact that the organization has already used them in the past, and as a result of these actions it was obtained profits.
all obligations that held for trading at fair value, should immediately be manifested in the future calculation of all profits and losses of the company for a specific period.All other financial instruments of the financial market can be measured at amortized cost, except for one thing.It is about the commitments that have arisen during the period when the financial asset can not be recognized, "sold at fair value" and should be used in the future.
In this case, such a commitment should be assessed taking into account the following conditions:
- If it is a collection of rights and obligations which the organization has retained from the previous owner, first measured at amortized cost.
- Previously it at fair value, but the organization was handed over to any individual conditions.
- If the obligation is a contract with a bank for a loan interest, which are lower than market rates.
In this case, it should be valued at the higher of the following indicators:
- amount that was determined in strict accordance with IFRS (IAS) 37 "Provisions, Contingent Liabilities and Contingent Assets".
- amount initially recognized fair value, even with the pre-deducted amortized cost.
classification concepts
Today, economists say that all financial instruments can be divided evenly into two broad categories.In the first case, these documents must be based on real capital, giving possession of any assets (stocks, for example), or else represent liabilities of one company over another.In this case, the bonds are issued.However, often they are seen in context, as the financial markets and financial instruments in this regard is almost can not be separated.
Each tool is best viewed in the context of the "unit" of money capital.Moreover, each element has its own unique characteristics, the structure and conditions of use.It provides a wide variety of fast movement of capital in the global financial market and its further development.In recent years, the market of financial instruments developed more active, the more promising areas of marketing offers to producers in Southeast Asia.
And now let's look at one of the types of securities, which include the concept of "financial instruments".It shares.There are simple and preferred varieties.
Common shares
They not only give a voice in the company, but also allow the holder to receive a portion of profits from the entire organization.Of course, this species is not only the most common throughout the financial market, but also the most interested investors.Such securities are stable and versatile tool, and therefore the formation of their value is influenced by normal market forces.All the stock markets can not only buy them directly, but also to make a profit by using the services of brokers or brokerage firms.
Some benefits provide only those financial instruments of financial policy.For example, the right to vote, to which many are treated with some disdain, allowing lobby promoting their candidates for the Board of Directors, and this is - a very important tool, not only the economy but also politics.
Among other things, the size of dividends on shares of the classic depends on the profitability of the company.Successfully invest, not only do you get some leverage, but a handsome profit.Of course, do not forget about the growth of their value directly.This happens when the economic condition of the enterprise is dramatically improved.However, the price of ordinary shares may also fall sharply, leading to a loss of investors.
Preferred stock is a class of securities, which gives expanded rights to dividends and profits from the sale.In addition, dividends of their owners get faster holders of common shares.At the same time we should not forget that the right to vote from the holders of such securities is not, and therefore have a direct impact on the management of the enterprise, they can not.This financial policy financial instruments, which have a very limited range of real applications.
Generally, an accurate list of the benefits that give preferred shares, strictly depends on the characteristics of a company.The very essence of the variety of financial instruments is that these actions combined characteristics of debt instruments (as is the case with bonds, there is a fixed percentage dividend) as well as instruments of ownership.The latter fact suggests that these types of financial instruments already allow you to earn income due to the growth of the market value of the shares themselves, who do not even need to sell.
Of course, there have their own advantages and disadvantages.The advantage is an extended right to receive profits and dividends.In addition, you do not have a voice, and the cost of preferred stock is growing much more slowly than the price of conventional.
Thus, financial instruments - a powerful tool for profit, and for the impact on businesses.
