- Nature: Financial Liabilities
A financial instrument is an asset that can
be traded or exchanged under a contract. - Financial Liabilities: A financial liability is
any liability that is:
Financial instruments include primary
instruments and derivative financial - A. A contractual obligation:
instruments.
- To deliver cash or another financial asset
Financial Assets to another entity.
Cash on Hand and in Banks. Includes: - To exchange financial assets or financial
liabilities with another entity under
- Petty cash. conditions that are potentially unfavorable to
- Demand, savings, and time deposits. the entity.
- Undeposited checks.
- Foreign currencies. - Financial Liabilities: A financial liability is
- Money orders. any liability that is:
- Bank drafts.
- B. A contract that will or may be settled
Accounts, notes, and loans receivable, in the owners equity instrument and is:
investment in bonds, and other debt
instruments issued by other entities. - A non-derivative for which the entity is or
Includes: may be obligated to deliver a variable
number of the entity's own equity
- Trade receivables (signed delivery receipts instruments, or
and sales invoice).
- Promissory notes. - A derivative that will or may be settled
- Bond certificates. other than by the exchange of a fixed
amount of cash or another financial asset
Interest in shares or other equity for a fixed number of the entity's own equity
instruments issued by other entities. instruments.
Includes:
Equity Instruments
- Stock certificates.
- Publicly-listed securities. - Equity Instruments: An equity instrument is
any contract that evidences a residual
Derivative financial assets. Includes: interest in the assets of an entity after
deducting all of its liabilities.
- Futures contracts.
- Forward contracts. - Examples of Equity Instruments are:
- Call options.
- Foreign currency futures. - Ordinary Shares
- Interest rate swaps. - Preference Shares
- Warrants or written call options that allow
the holder to subscribe or purchase ordinary Sample & Specimens of Financial
shares in exchange for a fixed amount of Instruments
each or another financial asset.
- Local Currency: Philippine Pesos
Derivative Financial Instruments
- Foreign Currency: US Dollars
- Derivatives: Derivatives are financial
instruments that "derive" their value on (Includes images/examples of Peso and
contractually required cash flows from some Dollar bills)
other security or index.
- Time Deposit Certificate
Examples of Derivatives
- Photocopy of the Time Deposit Certificate
1. Futures Contracts: A futures contract is for Php 1,040,000 placed in 2005
an agreement between a seller and a buyer
that requires that seller to deliver a - Interest of 10% per annum or 50% after 5
particular commodity (say corn, gold, or years
soya beans) at a designated future date, at
a predetermined price. - 8 Sept 2010
2. Forward Contracts: Similar to futures, - Fixed Deposit Certificate
but:
- Includes example certificate with details
- Delivery on a specific date. such as "Mr. Angtlino Taguba," a long term
- Not traded on market exchanges. deposit, and reference to the year 2008.
- Settlement at closing.
- Corporate Check
3. Call Options: Options give its holder the
right either to buy or sell an instrument. - Diamond Advertising Company
4. Foreign Currency Futures: Foreign - Example mentions "One hundred
loans frequently are denominated in the thousand only"
currency of the lender (Japanese yen,
Swiss franc, German mark, and so on). - Bank of the Philippine Islands
When loans must be repaid in foreign
currencies, a new element of risk is - Personal Check
introduced.
- Example with "Roy Arg" and an account
5. Interest Rate Swaps: There are number
contracts to exchange cash flows as of a
specified date or a series of specified dates - "Tw Tr Hude Foty Tsad S Hde Severty Eg
based on a notional amount and fixed and Oy"
floating rates.
- BP Family Savings Bank
- Certificate evidencing Investment in Bonds
- Savings account passbook evidencing
savings deposit with a Commercial Bank - BOND CERTIFICATE
- Includes examples of dates, ATM - DEBT INSTRUMENTS
transactions, deposits, withdrawals, and
balances. - Promissory note evidencing Receivable of
City Finance Company (Lender) from Jane
- Bank Statement evidencing existence of Monroe (Borrower)
demand/ current deposit with a Commercial
Bank - Example: Jane Monroe promises to pay
City Finance Co. $50,000. Repayment is to
(Includes image examples of each) be made in the form of 300 equal payments
at 6% interest, or $322.15 payable on the
Equity Instruments 1st of each month, beginning 8/1/2005 until
the total debt is satisfied.
- EQUITY INSTRUMENTS
- DEBT INSTRUMENTS
- Stock Certificate evidencing investment in
Common Stock or Ordinary Equity Share - Insurance Certificate representing
investment in an insurance policy
- VANADIUM CORPORATION OF
AMERICA - UNITED KINGDOM INSURANCE
COMPANY INDEX
- EQUITY INSTRUMENTS
- DEBT INSTRUMENTS
- Stock Certificate evidencing Investment in
Preferred Stock - Forward Contract
- Interborough Consolidated - Example: 18 September 2020, Mr. Juan
Santos hereby undertakes to deliver one ton
DEBT Instruments of corn on 18 December 2020 at a price of
Php 35,000.00 at Balintawak Farmers
- DEBT INSTRUMENTS Market (8:00 am - 12:00 pm). Mr. Ricardo
Dalisay hereby undertakes to take delivery.
- Certificate evidencing Investment in
Treasury Bonds - DEBT INSTRUMENTS
- 1000000 - Index Derivative Contract Specifications
- INE MILLION DOLLARS (Includes a table outlining contract
specifications like underlying security,
- DEBT INSTRUMENTS contract size, price quotation, etc.)