Bonds and financial instruments – identification and accounting treatment (Part II)

Author:Univ. prof., PhD Elena DOBRE



Keywords:financial instruments, securitization, financial debts, financial assets, equity instruments

This analysis leads to the idea that the relationship between bonds and financial instruments is that the one from part to the whole. Any bond is a financial instrument given the fact that it correspond to the accounting content of a financial instrument (generating financial assets on the one hand and financial liabilities or equity instrument son the other hand) while a financial instrument is not compulsorily a bond if this is marketed on the financial monetary and capital markets. \r\n\r\nThe criteria for differentiating them are on legal, accounting and financial nature. The definition of the financial instruments is common up to a point with that of the bonds, meaning that both are contracts generating in a correlative manner rights (financial assets) and liabilities (financial liabilities or equity instruments) in the issuing entity and in the receiving or owning entity accounting. The notions differentiate between them by their marketing on a regulated market. The bonds (primary, derivatives and synthetics) are marketed on the monetary market (short term deposits in foreign currency) and on the capital market. Although they are based on a contract that generates financial assets and financial liabilities or equity instruments, the financial instruments are not in all the cases transmittable through their marketing. \r\n\r\nThese cases are the financial leasing contracts, the forward contracts, the swap contracts and other financial instruments like shares or participations in the investment funds etc. On the other hand, given the fact that the options, as financial instruments are written and marketed at the stock exchanges they are at the same time bonds. The difference between the financial instruments and bonds starts from the financial and accounting characterizing for the both categories. The method is based on how they are perceived in the financial markets given that their frequent marketing leads to the financial markets liquidity and volatility. \r\n\r\nThe bonds are of a great variety but depending on their content are divided in primary bonds, (shares, rights generated by shares, obligations, rights generated by obligations, state bonds) derivatives (contracts futures, conditional term contracts – options) and synthetics bonds (contracts futures on stock exchange indexes and options on stock exchange indexes).