Introduction
The development and expansion of the means of communication and the
openness of economic activity in the last three decades have facilitated the
free movement of funds between global capital markets and increased
intense competition forces between banks and public financial institutions in
these markets as this contributed to the emergence of new financial tools
based on the concept of financial engineering, which in turn led to an
increase in the volume of commercial deals implemented through it, whether
with the aim of adopting modern investment methods or financial hedging
and risk transfer or for the purpose of managing financial liquidity
The concept of financial instruments
Financial instruments represented in shares and bonds issued by the
business establishment are the main commodity traded in the capital
markets and the security represents a instrument that gives the holder
the right to obtain a portion of the return or a part of the assets or the
two rights together, so the holders of ordinary shares and preferred
shares, for example, have the right to a portion of the return The one
who is born from the operations of the establishment, as they have a
share in its assets, and if they do not have the right to claim it as long
as the establishment is still ongoing, so the holders of bonds have a
share in the profits represented in the interest due and a share in the
assets represented in the pledged assets versus the issued bonds or in
the assets in general In the event of bankruptcy or liquidation
Definition of financial instruments: -
Financial instruments were known by several definitions
1- Financial instrument: It is any contract that leads to the emergence
of a financial asset for a particular company and a financial obligation
or instrument of rights for another company
Also, it was defined as the right of ownership of any contract indicating
a share in the net assets, and the net assets mean the remaining share
in the assets of an enterprise after deducting all of its obligations. It is
noted that the commitment to issue the property rights instrument is not
a financial obligation because it results in an increase in ownership
rights and cannot result in a loss of the establishment.
2- Financial instrument: - Any contract created from the financial
assets of the enterprise, the financial liabilities of the enterprise, or the
shareholders ’rights of another facility
And we see the researcher that the financial management is any
contract that results in both financial assets and financial liabilities or
property rights from an economic unit to another economic unit
Types of financial instruments
It is divided into shares and bonds
1- Shares: They represent shares of both normal and premium types,
and shares are equal shares in the ownership of a corporation or a joint
stock company fixed by legal instruments that can be traded for sale
and purchase in the financial markets. It represents a method of
financing the company and it is the capital and gives its owner some
rights and privileges from it
1- The right to elect members of the Board of Directors
2- The right to nominate for participation in the management of the
company with the amount of shares it owns
3- The right to obtain a share in the distributed profits equal to its
share of the paid-up capital
4- The right to obtain its share of the residual value upon liquidation
after the company pays its obligations
Ordinary shares, divided into:
1- Nominal shares: These are shares on which the name of the owner
of the shares is fixed, and the shares are registered with the company
in the name of the owner of the company
2- Shares of an order: The name of the shareholder shall be
mentioned in the certificate, with the permission of the ear or the order
shown
3- Shares of the bearer: - The share certificate does not bear the name
of the owner of the shares, but rather becomes the owner of the
shares, the holder of the certificate.
The common stock takes several values according to the company's
life stages, including: -
1- Nominal value: It is the value that is determined when the company
is established and it is fixed in the share certificate issued to its owner
2- The value of the issue: - Often it is equal to or more than the face
value and is determined when it is offered for public subscription. The
value of the issue of the share may not be less than the face value
3- Market value: It is the value that is determined for the stock in the
financial market by taking up the stock and the conditions of supply and
demand for it
4- Book value: - It is extracted from the records and books of the
company through the value of the assets in the books of the company,
and therefore it was called the book value to extract them from the
books.
2- Bonds (creditor rights)
One of the traditional financial instruments is bonds, and creditor rights
represent loans that are borrowed by different parties to finance their
operations. The bond is used to regulate credit and money supply.
Central banks may issue bonds in case of inflation to absorb excess
liquidity in the market.
Types of bonds
1- Government bonds: They are issued by the state as treasury bonds
and are distinguished by that they include more reliability and security
than other bonds, and their benefits are exempt from income tax
2- Bonds issued by private entities: - This type of bond is issued by
institutions, companies and banks
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