All About Financial Instruments: Conceptual developments in financial instruments
Author:
Univ. prof., PhD Elena DOBRE
JEL:
DOI:
Keywords:
bonds, international standards, financial investments, receivable securitization, securitization
Abstract:
From the bond concept, defined initially only from the legal and commercial point of view, the bonds theory and practice met new conceptual developments with the financial and accounting approaches for bonds. From titles (bonds), which have asset values (being used for commerce and titles representative for supplies), new concepts developed in the financial and accounting area, namely: financial titles and financial instruments. This development followed to the financial markets development where these titles are marketed and to the need to register from the accounting point of view these transactions together with their effects as accurate as possible. Consequently, the bonds as commerce titles and titles used for supplies could be found only on the not organized markets or on the monetary markets or on short term, while the financial titles (securities) could be found on a large scale on the medium and long term financial markets (capital markets). \r\n\r\nWe can see that the financial and accounting approaches on the capital markets lead to a structure of the bonds according to their aggregate level of their content in the market in primary bonds and derivatives and, respectively, in primary financial instruments and derivatives. \r\n\r\nThe conceptual development of bonds was also the result of the relationship between the accounting and financial approach for bonds, according to their use by the company in its fundamental activities: investments, financing and operational. The current accounting theory and practice in the financial instruments area point out the different 0065perience in several countries concerning the application if similar accounting principles, from here resulting the development of different regulation concepts: the European continental concept, the Anglo – Saxon concept, the American concept. The American accounting regulations define three categories of bonds which are managed by a company: Held - to- maturity securities, Trading securities, Available – for – sale securities. \r\n\r\nBased on the participation in the equity of the company issuing bonds, the financial instrumenys grouped together in accordance with the definitions given in the harmonised accounting regulations OMFP no. 94/2001 in Romania as follows: participating bonds, strategic participating bonds,minority interests, significant investments. Currently, the accounting regulations conform with the European directives (OMFP no. 1752/2005), groups in the balance sheet the bonds which are at the same time financial instruments, as folows : foinancial instruments, short term investments, borrowing from bonds issuance with the separate presentation of the borrowings from the convertible bonds issuance. A phenomenon which developed as result of deregulating the financial markets has been receivable titrization, this leading to a diversification of bonds with the appearance of new bonds, as for example the mortgage bonds in USA (MBS-Mortgage Backed Securities). \r\n\r\nThe receivable securitization by the Receivable Common Funds, is an innovation of the financial markets and it developed especially in the USA, but also in other countries with financial experience, like for example in France. In Romania, according to the new regulation, this is known as receivable securitization.\r\n\r\n