FINANCIAL INSTRUMENTS

Jul 10th, 2016
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This paper discuss about financial instruments in details

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Running head: FINANCIAL INTRUMENT1Financial InstrumentsNameCourseInstitutionDateFINANCIAL INSTRUMENTS2The term financial instruments refer to right agreements where there is an exchange of money forpayment of premiums, interests or acquisition of rights between one party and another.Types of Financial Instruments and Risks AssociatedBondsThese are fixed return instruments. Their benefits are for raising income. They are used as a wayof garnering profits by most private entities. It involves issuing of money by the lender inexchange for returns in the form of interest. The risks associated with bonds are interest rate risk,call risk and issuer risk. Interest rate risk involves risks due to changes in rates in the market.The interest rate may rise or fall. Low-interest rates are a risk as they lead to a loss. Call risksinclude risk due to withdrawal by the issuer before maturity time is reached. This affectsnegatively the expected returns. Issuer risks occur when an issuer is not in a position to pay backthe obligations.EquitiesEquities include a financial security where one has shares in a company. The equities areexchanged in a stock market or traded directly from the company through the Initial PublicOffering (IPO). The returns are usually high as it is a long-term investment. However, the risk ishigh in this type of financial instrument. The risks involved in Equities are company risks, pricerisks and dividend risks. Dividend risks occur when

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