Financial products refer to instruments that help you save, invest, get insurance or get a mortgage. These are issued by various banks, financial institutions, stock brokerages, insurance providers, credit card agencies and government sponsored entities. Financial products are categorised in terms of their type or underlying asset class, volatility, risk and return.
Types of financial products
Shares: These represent ownership of a company. While shares are initially issued by corporations to finance their business needs, they are subsequently bought and sold by individuals in the share market. They are associated with high risk and high returns. Returns on shares can be in the form of dividend payouts by the company or profits on the sale of shares in the stockmarket. Shares, stocks, equities and securities are words that are generally used interchangeably.
Bonds: These are issued by companies to finance their business operations and by governments to fund budget expenses like infrastructure and social programs. Bonds have a fixed interest rate, making the risk associated with them lower than that with shares. The principal or face value of bonds is recovered at the time of maturity.
Treasury Bills: These are instruments issued by the government for financing its short term needs. They are issued at a discount to the face value. The profit earned by the investor is the difference between the face or maturity value and the price at which the Treasury Bill was issued.
Options: Options are rights to buy and sell shares. An option holder does not actually purchase shares. Instead, he purchases the rights on the shares.
Mutual Funds: These are professionally managed financial instruments that involve the diversification of investment into a number of financial products, such as shares, bonds and government securities. This helps to reduce an investor’s risk exposure, while increasing the profit potential.
Certificate of Deposit: Certificates of deposit (or CDs) are issued by banks, thrift institutions and credit unions.They usually have a fixed term and fixed interest rate.
Annuities: These are contracts between individual investors and insurance companies, where investors agree to pay an allocated amount of premium and at the end of a pre-determined fixed term, the insurer will guarantee a series of payments to the insured party.
Complex Financial Products
There are certain financial products that are highly complex in nature. Among these are:
After wild swings at midweek (October 15), the US dollar spent the last two sessions of the week consolidating. While we expect the Federal Reserve will not be distracted by the recent market turmoil, or the softening of some market-based measures of inflation expectations, and will announce the finishing of its asset purchases, we recognize that Bullard's comments cast a greater element of doubt. This doubt may prevent a resumption of the dollar's uptrend. Broad consolidation is more likely in the days ahead.
Professor of Economics & Director of the Earth Institute at Columbia University. Special Adviser to the UN Secretary-General on the Millennium Development Goals. Founder & co-President of the Millennium Promise Alliance.
CEO and co-CIO of PIMCO. Served as President and CEO of the Harvard Management Company for 2 years, while also working at the IMF for 15 years. In 2008, his book "When Markets Collide", won the Financial Times award for Business Book of The Year in addition to being named as the one of the best business books of all time by The Independent.
Vice President and Director of the Global Economy and Development Program at the Brookings Institution. Former Turkish Minister of State for Economic Affairs. Head of the United Nations Development Program (UNDP) from 2005-2009.
Andrea Edwards has worked in marketing and communications all over the globe for 20 years, and is now focused on her passion – writing. A gifted communicator, strategist, writer and avid blogger, Andrea is Managing Director of SAJE, a digital communications agency, and The Writers Shop – a regional collaboration between the best business writers in Asia Pacific