Due to the fact that today there is more and more job competition in relation to the number of jobs available, the topic of entrepreneurship and financial freedom has become more popular; However, when we want to embark on the adventure of to be entrepreneurs or to be investors we realize that there are many terms and tools that we do not know how to use, and sometimes we do not even know they exist. In this article we will focus specifically on financial instruments that exist and what their function is, so that we can make a decision about whether it is a good idea to invest, and which is the instrument that best suits our needs.
Financial instruments They are tools in which the investor places his money in order to be able to receive a profit that will run to his expectations; but we can find that there are many of these financial instruments, so it is necessary that we become aware of the following segmentation that exists. Segmentation that helps us to stay well informed and that will allow us to make better decisions.
So in order to begin with the analysis of these instruments, it must be made clear that we can divide them into two large groups, cash financial instruments and derivative financial instruments. Each one of them has its special characteristics and that are identified by the level of trust and also by the possibility of profit that exists.
Cash financial instruments
This type of financial instruments They are those instruments that have a value that is deeply related to the markets, in this way it is the markets that determine the value of our instrument.
Securities
These instruments can be classified first in securities, but What are values? In a professional way, it can be defined as the property right of an obligation or a credit title. The value is consigned using a document that allows the owner to have a right to the monetary value in an autonomous and literal way.
A synonym that securities can have is credit titles, which are documents that allow the owner to register an exercise of a private right. This title is associated with the specific value mentioned at the beginning of the section.
Some examples of securities can be checks, promissory notes and bills of exchange; so each one of them has a net value that cannot be modified, that is, the value of the credit or the payment obligation; but the price at which it is negotiated can vary.
Derivative financial instruments
Un derivative financial instrument It is one that has a value that is determined by the characteristics and the proper value of various assets that are directly related to this instrument. Within this classification we can find those securities that are listed on the stock market, and those that are determined as derivatives outside the market.
This type of financial instruments They are the ones with a greater capacity to generate profits, or losses; On many occasions, these types of financial instruments serve two purposes: financing and investment. What does the classification depend on? It depends on whether you are the one who grants the sale or who acquires it.
A very specific type of financial derivative instruments they are currencies, since they are assets that have their own value compared to another currency, but this value depends on variables such as economic stability, political situations, etc. In other words, it is a fairly volatile market, so experts recommend having a solid foundation to be able to invest in said market is to risk our capital in a reckless way.
But to finish defining concretely the financial derivatives Let us mention the characteristics that identify it. First, its market value is variable and responds to issues such as changes in interest rates or the price of other financial instruments, or in the case of products, it is the value of the raw material that has been priced.
It also depends on the exchange rates to which there are different currencies and even in some cases depends on the specifications of the contract that was obtained in order to be able to invest in said financial instrument.
One of the favorite features For many, it is that an initial investment is not required, or if it is required, the amount is much less than the investments that require other types of financial instruments could amount, however, it is important to consider that, although this is an advantage, it is also You have to consider having a solid foundation to be able to invest in this type of instrument.
Finally, the characteristic that identifies financial instruments is that they are settled only at the future date, that is, their profit or loss is not completely certain, and it is until the moment the contract is terminated that one receives the losses. or earnings.
Let's see below which instruments belong to the investment classification and which belong to financial financing products.
Investment financial instruments
They are considered within this category equities and fixed income; those of variable income are those that belong to a final capital, for example, we have the shares of a company, although there are some more.
Now, the name itself defines their nature, the fact that they are of "variable" income It implies that there is a variation in the amounts that are perceived, exemplifying it in a simpler way, we can say that the same share of the same company has a value of 10 euros today, but within a week the value of the same share can be 12 euros.
This type of instruments They have two functions, generally the investor recovers his investment, and they obtain long-term profits, so that it results in a good investment, but the truth is that the main reason why these instruments exist is that they serve as financing for the company whose shares are.
As for fixed income instruments We can mention debts, this type of investment is much safer than variable income, although its yield is clearly lower; some examples of this type of instrument are the public and private debts, as public debt, promissory notes and corporate obligations or promissory notes. In a certain way, it can be said that these instruments are financing at a fixed rate that will be rolled back in a certain time.
The issuers of this type of contract They can be from countries, to banks or private companies, which makes the range of opportunities really wide, giving many possibilities on where to inject our capital.
Others financial instruments that exist are insurance, of these there is a great variety, from insurance for cars, boats, commerce, etc. These insurances are considered as a financial instrument because their main function is to provide financial support in unfavorable situations.
Another of the financial instruments with less risk that exist are the investment funds, In this scheme, the capital is collected by an entity that manages all the investors, in this way a capital of a considerable size is obtained so that it can be channeled to an investment fund that is granted to a financial entity, which is the who makes the investments and capital movements, once the term agreed with the final lens ends, then he recovers his investment and part of the profits that are generated.
Financing financial instruments
In this classification of financial instruments the loans come in as they are the mortgages, in which a financial institution grants the amount to be able to acquire a real estate, so that said institution finances the purchase; Another type of financial financing instrument is credit cards, this instrument is used to acquire certain products or raw materials so that a business can function.
Another financing instrument that exists is the financial leasing, which is a procedure similar to a rental, since the lessee pays a defined amount during a set period, so that he can make constant use of the asset in question; the differences with the rent is that at the end of the period there must be for the tenant a asset purchase option, and the price you set for this transaction must be less than the market price.
It is important that when a company has this type of financing have very good accounting, since the legal and accounting considerations involved in financial leasing are quite specific and clear, so it is always better to have all the necessary documentation in order to determine the best ways to work with the assets that the company is leasing. Although it is possible that we find leasing not only in companies, but also individually, and a very particular case is that of vehicles, in which the lessee rents a car with the possibility of buying it at the end of the period.