Consider the following:

1. Exchange-Traded Funds (ETF)

2. Motor vehicles

3. Currency swap

Which of the above is/are considered financial instruments?

The correct answer is Option 4.

Key Points

• Exchange-Traded Funds (ETF) are financial instruments that are traded on stock exchanges. They are investment funds that hold assets such as stocks, commodities, or bonds and trade at market prices. Hence, 1 is correct.
• Motor vehicles: Motor vehicles are physical assets and are not considered financial instruments. They are tangible goods used for transportation and do not represent any financial value or contract. Hence, 2 is incorrect.
• Currency swap: A currency swap is a financial instrument involving the exchange of principal and interest in one currency for the same in another currency. It is used by companies and financial institutions to hedge or speculate on currency exchange rate movements. Hence, 3 is correct.
• Therefore, the correct answer is option (4).

Additional InformationKey details about financial instruments:

• Definition: Assets that can be traded, representing a monetary value.
• Types:
  • Equity Instruments: Stocks, shares, representing ownership in a company.
  • Debt Instruments: Bonds, loans, representing a loan made by an investor to a borrower.
  • Derivatives: Options, futures, contracts whose value is derived from underlying assets.
  • Hybrid Instruments: Convertible bonds, combining features of debt and equity.
• Functions:
  • Investment: Provides opportunities for earning returns.
  • Funding: Helps businesses and governments raise capital.
  • Risk Management: Derivatives allow hedging against price fluctuations.
• Examples:
  • Stocks: Ownership shares in a corporation.
  • Bonds: Debt securities issued by entities to raise capital.