44
Question 44
Consider the following:
1. Exchange-Traded Funds (ETF)
2. Motor vehicles
3. Currency swap
Which of the above is/are considered financial instruments?
1. Exchange-Traded Funds (ETF)
2. Motor vehicles
3. Currency swap
Which of the above is/are considered financial instruments?
AOptions
A
A) 1 only
B
B) 2 and 3 only
C
C) 1, 2 and 3
D
D) 1 and 3 only
BSolution
Let's define and categorize each item:
1. Exchange-Traded Funds (ETF): Correct. ETFs are investment funds traded on stock exchanges, similar to stocks. They hold assets like stocks, bonds, or commodities and track an underlying index. They are definitely considered financial instruments.
2. Motor vehicles: Incorrect. Motor vehicles are physical assets, or capital goods, used for transportation. They are not financial instruments. A financial instrument is a monetary contract between parties, representing an asset for one party and a liability for another.
3. Currency swap: Correct. A currency swap is a financial derivative instrument where two parties exchange principal and/or interest payments on loans in different currencies. It is a type of over-the-counter (OTC) derivative. It is used for managing exchange rate risk or obtaining cheaper financing.
Therefore, 1 and 3 are considered financial instruments.
1. Exchange-Traded Funds (ETF): Correct. ETFs are investment funds traded on stock exchanges, similar to stocks. They hold assets like stocks, bonds, or commodities and track an underlying index. They are definitely considered financial instruments.
2. Motor vehicles: Incorrect. Motor vehicles are physical assets, or capital goods, used for transportation. They are not financial instruments. A financial instrument is a monetary contract between parties, representing an asset for one party and a liability for another.
3. Currency swap: Correct. A currency swap is a financial derivative instrument where two parties exchange principal and/or interest payments on loans in different currencies. It is a type of over-the-counter (OTC) derivative. It is used for managing exchange rate risk or obtaining cheaper financing.
Therefore, 1 and 3 are considered financial instruments.
CStrategy
Understand the core definition of a 'financial instrument' (a contract representing a monetary asset/liability). Distinguish between financial assets (like ETFs, bonds, derivatives) and physical assets (like vehicles, machinery, land).
DSyllabus Analysis
Economy: Financial Markets (Capital Market, Derivatives), Banking and Finance.
EQuestion Analysis
This is a conceptual question from Economics, testing the definition and examples of financial instruments. ETFs and currency swaps are clear financial instruments, while motor vehicles are physical assets. Easy difficulty.