The financial market actually has many different “instruments”. What this basically means is that different instruments are really just securities that are traded in financial markets. Here are just a few of them.
-United States Treasury Bills-
United States Treasury bills are basically just bills that are issued by the government, meant for short term loan purposes. These are usually matured within a few months, maybe around 6 months. These bonds don’t necessarily pay interest, but they’re sold at a discount, and won’t be worth the full value on the paper of the bill until the date of maturity.
-Certificates of Deposits-
These are also known as “CDs” at most banks, and by most people. What a CD is, is a debt instrument sold by a bank, so that savers can earn an annual interest rate on their savings. What is different between certificates of deposits and regular savings accounts, is that CDs typically pay a higher interest, but the money cannot be touched for a set period of time(which you choose). If you withdraw money earlier than that set period of time, then most banks or credit unions will charge you some type of penalty.
-Commercial Paper-
Commercial paper is a similar type of idea, in the sense that it’s also a debt instrument. These are usually issued by large banks and large corporations.
-Federal Funds-
Federal or “Fed” Funds are typically very short term loans between banks and other banks. These are typically done through the federal reserve, but government money is not being loaned.
-Stocks-
Well most people probably know what stocks are, but may not know what they really do. Stocks is just a term for ownership of part of a company. You’re technically claiming part of their net income, as you’re investing money into the company, saying that you trust that their company will continue to prosper and grow.
-Mortgages-
Mortgages is another very popular term, and most people have probably heard it. Mortgages are just loans to landowners where the property, whether it’s a house, a business, or whatever works as collateral for the loan. In other words, if you take out a mortgage, but can’t pay it back, you may lose your house.
-Corporate Bonds and Government Securities-
These are typically long term bonds issued by large corporations in strong financial standing. These typically can pay both interest payments, as well mature to the whole value of the bond, as we had discussed before.
As you can see, there are so many different “instruments” in the financial market. Really there are bunch more, but I obviously couldn’t list them all here, so these are some of the most popular and well known ones.