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Cfa3 2
Cfa3 2
Financial instruments are contracts that give rise to both a financial asset of one company and a financial
liability of another company. Financial instruments come in a variety of forms which include derivatives,
hedges, and marketable securities.
Financial assets:
Financial liabilities:
Derivatives.
Financial liabilities held for trading.
Non-derivative instruments with fair value exposures hedged by derivatives.
Financial assets:
Financial liabilities:
Held-to-maturity securities. Debt securities that management intends to hold to their maturity dates. At
year-end, they are reported at cost adjusted for the effect of interest (debit the securities account and credit
the interest income account) and unrealized holding gains and losses are not recognized.
Trading securities. Debt and equity securities bought and held mainly for sale in the short term to
generate income on price changes. At year-end, they are reported at their fair market value. Any unrealized
holding gains or losses are recognized on the company's income statement as part of net income. When
they are sold, the realized gains or losses will also appear on the income statement. Realized gains and
losses are not affected by any unrealized gains or losses recognized before.
Available-for-sale securities. Debt and equity securities not classified as held-to-maturity or trading
securities. Unrealized gains and losses are reported as part of other comprehensive income (in contrast, the
unrealized gains or losses of trading securities are reported in the income statement as part of net income).
Other than that, they are accounted for in the same way as trading securities.
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