Consider the following :
- 1.Exchange-Traded Funds (ETF)
- 2.Motor vehicles
- 3.Currency swap
Which of the above is/are considered financial instruments ?
Show answer
Answer: D. A financial instrument is a contract that is a financial asset for one party and a liability for another, such as shares, bonds or derivatives. An Exchange-Traded Fund is a tradable investment fund, and a currency swap is a derivative contract, so both are financial instruments. A motor vehicle is a physical asset, not a financial instrument. So 1 and 3 only.
Watch for: Vehicles can be bought on loan, but the loan is the financial instrument, not the vehicle.
Why the other options are wrong
- A. Wrong because a currency swap is also a financial instrument.
- B. Wrong because a motor vehicle is a physical asset.
- C. Wrong because motor vehicles are not financial instruments.
Source to check: SEBI investor education material on ETFs (investor.sebi.gov.in); RBI Master Direction on Risk Management and Inter-Bank Dealings (currency swaps)
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.