Financial instruments help institutions and businesses increase their capital. They may be short-term or long-term, debt or equity-based instruments. Every instrument has its own set of advantages and disadvantages before investing or trading.
Your introductory paragraph must entice readers to continue reading your essay by detailing what will be covered, while providing any necessary background or context that relates to its topic.
Cash
Cash may be an appealing payment method, but its limitations should not be overlooked. Tracking expenses may be challenging and cash may not always be convenient when used as payment; however, new hardware and software solutions make using cash easier for both individuals and businesses alike.
Cash has many advantages over credit cards when it comes to speed and no transaction fees; credit card companies typically charge anywhere from 1.5-3.5% of the transaction amount in fees.
Cash can also help you stick to your budget by forcing you to recognize how much of it is leaving and coming in from week to week or month to month, making it harder for overspending as credit cards cannot be hidden behind it. Cash also serves as an ideal store of value as people can deposit funds without risk of default and use it for payments and gifts between people directly.
Equity
Equity is a vital concept in financial markets. It can refer to any number of different things ranging from stock prices and house values minus mortgage balance, to ownership in companies. When choosing investments options, equity should always be top of mind and working with an advisor is usually your best bet in developing an equitable strategy that helps meet your goals.
Equity investments offer numerous advantages, including potential high returns, diversification benefits and dividend payments. But be warned – equity markets can also be quite unpredictable and volatile; to manage the risk effectively on equity investments you must devise an action plan to manage losses effectively.
Debt
Debt financing refers to borrowing money over an extended period and paying interest on it, and can be used by both individuals and businesses alike for expenses, investments such as homes or cars purchases, or government operations and capital projects. Debt can either be secured (such as with mortgage or car loan agreements) or unsecure (based only on creditworthiness of borrower).
Debt can be beneficial to individuals and businesses alike; however, its use comes with risks. Overspending can become habitual over time as debt accumulation spirals downward. Regular payments could strain cash flow during times of low revenue. Furthermore, most debt instruments contain covenants which limit operating freedom limiting your company from seizing new business opportunities.
Foreign exchange
The foreign exchange market is one of the world’s largest and most liquid financial markets, involving governments (usually through their central banks), corporations and individuals as participants. One common activity on this market is purchasing/selling currency on the spot market while forwards contracts and options contracts may also be utilized by participants.
Companies conducting international business require currency conversion when making payments or purchasing goods and services overseas. Individuals trading foreign exchange for speculation purposes often purchase currencies they expect will gain in value while selling those they believe will decrease in value; investors and speculators take advantage of anticipated monetary flows such as gross domestic product growth, inflation (purchasing power parity theory), interest rates, budget deficits or surpluses as well as major events when trading the market speculatively.
Foreign exchange trading involves money, making it an extremely liquid market – however, its liquidity comes at the cost of increased price volatility.
