Financial instruments, as given to them in the Markets in Financial Instruments, represent securities and instruments other than securities, as: money market instruments, units of collective investment undertakings, options, Futures, swaps, forward contracts and other derivative instruments.
Securities are evidence of an investment. They reflect the rights holder to their publisher (issuer). The main types of securities are stocks and bonds. In general we can define the difference between them so - shares consist property relations, bonds – relations of debt, ie. between lender and borrower.
Shares are securities issued by joint stock companies, certifying the, that those holding shares in the company – issuer. Shares give the holder the following rights: right out loud at the General Meeting of Shareholders; right to divvy; a liquidation quota; right to subscribe and purchase new shares of a corporation. Stock prices are highly volatile, makes investment in shares can be both very profitable, and many losers. Any decision to purchase or sell shares must be preceded by an assessment of the potential gains and losses.
Rights to shares are securities, to be issued in the capital increase of joint stock company and entitle the holders to purchase their due new shares at a fixed price. Rights are issued for a period of time, during which usually can not be traded, their price is determined by the terms of issue and the market price of the shares. Risks, associated with an investment in rights are the same as investment in shares, but it must be borne in mind these characteristics of this instrument.
A bonds are a type of debt securities, they bring to their owners cash income in the form of fixed or floating rate (coupon), according to the prospectus of the issuer. The bonds have a maturity and fixed payments during the period for which they are issued. Depending on the issuer, bonds can be: state bonds – issued by the government of the country; Municipal Bonds – issued by local authorities; corporate obligations – issued by companies; mortgage bonds – issued by banks based on their portfolios of mortgage loans.
Bonds are considered less risky assets than shares. In most cases, the bonds are secured by assets – property, securities, receivables etc.. Bond prices generally vary very narrow range, than share prices.
Convertible bonds are hybrid financial instruments, which entitle the holder to replace them with ordinary shares in a certain proportion. Maturity date (period) exchange, in t.ch. and the proportion identified in the relevant prospectus for issue. I have two harakteristiki: evidence of debt of the issuer to the holder of the convertible bond and an option to acquire ordinary shares of the Company at a certain proportion.
Therefore, the, that include an option to acquire shares they have a lower coupon rate than the ordinary bonds of similar risk. The conversion of convertible bonds into shares, bondholder is exposed to the same risks, which is exposed when investing in shares.
Money market instruments are debt instruments issued for a period less than one year. This type of financial instruments are short-term government securities (Treasuries), certificates of deposit, commercial paper and other.
They are traded in local money markets (organized by the Central Bank) or international markets. Holders of these financial instruments are exposed to major risks, characteristic of debt securities.
Money market instruments and repurchase agreements are – transactions where the investor sells (or Buy) financial instruments as otherwise repurchase (respectively. sale) at maturity of the repo at a predetermined price.
Specific to this type of transaction is the credit risk, which is the possibility of one of the parties fails to fulfill its obligations under the repurchase of securities, and other commitments on the transfer of securities.