Financial Reporting Standards

CHAPTER 7

Financial Instruments: Investment Securities and Derivatives

Introduction

Financial instruments are defined as: cash, ownership interests in other entities and contractual rights/obligations to receive/deliver financial instruments in the future. We will discuss two forms of financial instruments in this chapter. We first address accounting by investors who hold debt and equity securities of other entities, followed by a discussion of derivatives. Derivatives are financial instruments that “derive” their value from some other item. For example, an option to purchase shares of Ford Motor Co. stock at a set price derives its value from the market value of Ford’s stock, while credit default swaps derive their value from the likelihood ...