A financial instrument is a monetary contract between parties. They are broadly classified as cash instruments (like currency, deposits, loans, bonds, stocks) or derivative instruments (like futures, options, swaps). 1. Exchange-Traded Funds (ETF): An ETF is a type of investment fund that trades on stock exchanges. It represents ownership in a portfolio of underlying assets. ETFs are securities and are considered financial instruments. 2. Motor vehicles: A motor vehicle is a physical asset (a tangible good). It is not a financial instrument. While financing related to buying a vehicle (like a car loan) or insuring it involves financial instruments, the vehicle itself is not one. 3. Currency swap: A currency swap is a derivative contract where two parties exchange principal and interest payments in different currencies. It is a type of financial derivative and thus a financial instrument.
Consider the following : Exchange-Traded Funds (ETF) 1. Motor vehicles 2. Currency swap 3. Which of the above is/are considered financial instruments ?
Asked in UPSC IAS 2024 · Topic: Money & Banking (Financial Markets: Money Market and Capital Market (Components, Instruments, Role))
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