Consider the following: 1. Exchange-Traded Funds (ETF) 2. Motor vehicles 3. Currency swap Which of the above is/are considered financial instruments?
A1 only
B2 and 3 only
C1, 2 and 3
D1 and 3 only
Answer & Solution
Correct answer: D. 1 and 3 only
Answer: D. ETFs and Currency Swaps are financial instruments; motor vehicles are NOT.
Financial instruments are monetary contracts that create financial assets for one party and financial liabilities/equity for another.
(1) Exchange-Traded Funds (ETF): YES. ETFs are pooled investment securities traded on stock exchanges. Each unit represents fractional ownership of an underlying basket. Clearly a financial instrument.
(2) Motor Vehicles: NO. A motor vehicle is a tangible physical asset (real/personal property). It is not a financial contract or claim on cash flows.
(3) Currency Swap: YES. A derivative contract between two parties to exchange principal and interest payments in different currencies. A textbook financial instrument used for hedging and liquidity management.
So 1 and 3 only. Answer D.
Source: SEBI Financial Instruments classification / RBI Derivative Markets handbook.
Related questions
Selling part of the equity of public sector enterprises to the public is called:Before reforms, India protected industry through tight import controls and:As an immediate step in 1991, the rupee was:GST is meant to create one nation, one tax and one:GST came into effect from:The Goods and Services Tax Act was passed by Parliament in:Taxes levied on commodities are called:Moderate income tax rates are believed to encourage savings and: