Types Of Marketable Financial Securities

There are many ways to categorize financial securities. We have found it useful to use the scheme diagrammatically shown at top of next page.

An investor can choose to purchase directly any one of a number of different securities, many of which represent a different type of claim on a private or government entity. Alternatively, an investor can invest in an intermediary (mutual fund), which bundles together a set of direct investments and then sells shares in the portfolio of financial instruments it holds. Because indirect investing involves purchasing shares of bundled direct

Financial assets

Financial assets

Direct investing Indirect investing

Direct investing Indirect investing

Money market Capital market Derivative instruments instruments instruments

Money market Capital market Derivative instruments instruments instruments

Fixed income instruments

Equity instruments investments, we will discuss indirect investing at the end of this section. Direct investment can be divided by the time horizon of the investment. Investments in debt that have a life of less than one year are usually called money market instruments. These can be further divided according to whether the money market instrument is issued by a government entity or a private entity. Investments with maturities of more than one year are generally called capital market instruments. The latter can be divided according to whether they are debt or equity instruments, and debt instruments can be further divided according to whether they are issued by a government entity or a private entity. The final category of financial assets we discuss is derivative instruments. They are called derivative instruments because their payoff depends on (is derived from) the price of one of the primary assets already discussed. We will now discuss each of these categories of financial assets in turn.

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