Financing Instruments

Financial Dictionary -> Investing -> Financing Instruments

A Financial Instrument is usually classed as a document (although they may come in other formats, such as verbal agreements) that has a direct monetary value or the power to create monetary value at a later date, through a contract that agrees the payment of money to another party. Documents like cheques, bonds and shares are not a form of currency, but they do have a monetary value and are therefore financial instruments, or representations of worth.

More specifically 'Financing Instruments' are documents such as share certificates, promissory notes, or bonds that are used to obtain financing for a business or company. In other words their creation in turn brings in equity capital or loan capital for the company. Financing a business is putting money in to it to make it successful, so therefore financing instruments are instruments that are used to acquire this money.

The opposite of financing instruments are debt instruments. A debt instrument is usually referred to as a document, contract or obligation to repay a specific amount of money to an institution or other business. Although you have yet to pay back this money, the instrument represents the monetary value involved with the repayment. In a broad sense the instruments of a business are split in to two categories. Debt (what is owed) or equity (the money tied up in the business).

The most common form of equity for a company is stocks and shares still owned by the business, aka the pieces of paper that represent part ownership of the business that it certain cases can be freely sold and traded in the market place. Again they are not exact currency themselves but represent a proportionate value of the company and can therefore be sold for money or traded for other stocks of a similar worth.