Q. Consider the following:
1. Exchange-Traded Funds (ETF)
2. Motor vehicles
3. Currency swap
Which of the above is/are considered financial instruments?
Exp) Option d is the correct answer
Financial instruments are intangible assets, which are expected to provide future benefits in the form of a claim to future cash. It is a tradable asset representing a legal agreement or a contractual right to evidence monetary value / ownership interest of an entity. Financial instruments are typically traded in financial markets where price of a security is arrived at based on market forces.
Option 1 is correct: Exchange-Traded Funds (ETFs): ETFs are financial instruments that track the performance of a basket of assets (like stocks, commodities, or bonds) and trade on stock exchanges, allowing investors to buy or sell them like stocks throughout the trading day.
Option 3 is correct: Currency swap: A currency swap is a financial derivative contract in which two parties exchange the principal amount of a loan in one currency for an equivalent amount in another currency, based on the current exchange rate. It is used to hedge against currency risk or to obtain lower interest rates in different currency markets.
Option 2 is incorrect: Motor vehicles are not considered financial instruments. They are tangible assets used for transportation and are not traded as financial securities or derivatives on financial markets.
Source: https://egyankosh.ac.in/bitstream/123456789/90561/3/Unit-3.pdf https://www.business-standard.com/podcast/finance/what-is-a-currency-swap-122090300067_1.html
