Types of financial instruments: Financial instruments are contracts that give rise to financial assets of one entity and financial liability or equity instruments of another entity.
The main categories of financial assets are:
1. Financial Assets at a fair value though profit and loss (FVPL) – these are financial assets which are acquired with the intention of resale. Include shares and loan stocks which are traded on a stock exchange and derivative having a net cash inflow.
2. Held to maturity (HTM) – these are financial assets that are acquired with the intention to be held till the maturity or settlement date. Include the loan stocks traded in the stock in the stock exchange with the intention to hold till they mature.
3. Loans and Receivables (L/R) – these are financial assets which are acquired with the intention to be held till maturity date although no active market is involved.
4. Available for sale (AFS) – this is normally a default category for other financial assets that the firm may wish to classify as available for sale. Include shares and loan stocks not traded in the stock exchange, loans and shares issued by private companies.
Wilfykil answered the question on February 8, 2019 at 06:10
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