Different Types of Financial Instruments

The world of global business is expanding like ever before, as more and more nations are doing importing and exporting to meet their demands and requirements. Although, when it comes to trade, there is no question about it: import and export need adequate cash flow and trade finance support. Hence, bank instruments providers in Dubai offer different types of financial instruments in Dubai, UAE.

What are the Financial Instruments

Financial instruments are assets that can be traded, or they can also be seen as a package of capital that can be traded. Most types of financial instruments provide efficient flow and transfer of capital to investors from all over the world. These assets may be cash, a contractual right to distribute or receive cash or any other type of financial instrument, or proof of ownership of an entity.

Financial instruments can be real or virtual documents that represent a legal agreement involving any kind of monetary value. Equity-based financial instruments represent ownership of an asset. Debt-based financial instruments represent a loan given by an investor to an asset owner.

Different Types of Financial Instruments

  • Letter of Credit – A letter of credit is one of the popular financial instruments used in global trade. Because a letter of credit is usually a negotiable instrument, the issuing bank pays the beneficiary or any bank nominated by the beneficiary. The International Chamber of Commerce Uniform Customs and Practice for documentary credits oversees letter of credit used in international transactions.
  • Standby Letter of Credit – Standby letter of credit should be always issued as an irrevocable financial instrument and cannot be canceled or revoked since it has been issued and transmitted through authenticated message by an issuing bank. It is possible to assign a standby letter of credit to another beneficiary in accordance with the written instructions from the first beneficiary. The bank, which performs such transfer has to notify the issuing bank of the amount to be transferred and the effective date of the transfer.
  • Bank Guarantee – A bank guarantee is a financial instrument or security with a defined value that is issued by a bank with full banking responsibility. A bank guarantee is a written obligation of the issuing bank to pay a sum to a beneficiary on behalf of their customer in the event that the customer itself does not pay the beneficiary. Each bank guarantee is issued with an expiry date. This means the security is valid during the term before the expiry date. Most bank guarantees are issued for 1-year term.

How to Choose Right Financial Instruments

The things that help you in picking the right financial instruments are given below:

  • Set realistic financial goals – Financial instruments can set you on the correct track to achieve your investment goals, but you have to first define them. These can comprise short-term goals such as funding an early retirement. Certain instruments are geared more towards the short-term, while others are long-term investment funds.
  • Analyze your risk profile – We all have different risk profiles, combining psychological factors such as risk tolerance with need-based risk demands. If you have a strong risk appetite, then stock market-linked financial instruments may be a good option than low-risk government bonds with low pay-outs. Naturally, your ability to take risks should also be considered. The owners of small businesses may have limited resources to lose, so long-term managed mutual funds may be the best option. 
  • Understand the benefits – There are pros and cons to all types of financial instruments. You should compare factors such as the objective, management, level of risk, and time limitation before taking any decision. Naturally, your initial level of investment must be weighed into the equation; never invest what you cannot afford to lose. It is crucial to understand how the instruments work, so do your research into mutual funds or forex trading before investing. Those who are new to investing may wish to stick with non-complicated financial instruments such as mutual funds.

How can we help

Taskmaster commercial brokers LLC, a leading financial instruments provider in Dubai has reputed consultants and provides the blend of services in Dubai, without any hidden costs. Our clients come first for us. First of all, we trying to build the trust of our clients as it matters a lot.

If you are looking for financial instruments in Dubai then we at Taskmaster bank instruments providers are here to assist you to avail such facilities from rated banks. If you are interested then contact us. We would be happy to assist you.

Also Read:- What Is Performance Bond And How Does It Works?

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