Negotiable Instrument – Definition

Cite this article as:"Negotiable Instrument – Definition," in The Business Professor, updated November 26, 2019, last accessed August 10, 2020, https://thebusinessprofessor.com/lesson/negotiable-instrument-definition/.

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Negotiable Instrument Definition

Instrument refers to any asset that is traceable or negotiable. Instruments can refer to traceable stocks, securities, commodities, derivatives, indexes, or any other asset which highlights a derivate or index. Thus, since all the assets are traceable and negotiable, it is only proper to say that an instrument is a means by which value (the value of any securities and related instruments) is acquired, transferred, or simply held. In economics, however, an instrument refers to a variable that is controllable or alterable by government agencies and policymakers with the aim of modifying or increasing the performance of economic indicators. It can also consist of legal documents, contracts, deeds, and wills, among many others.

A Little More on What is an Instrument

As long as an asset holds value, we can refer to it as an instrument. Simply put, an instrument is any asset that is acquired by an investor with the aim of aiming profit on that asset. Thus any asset or commodity bought by an investor is termed a financial asset. Things like antique furniture, original art paintings, corporate bonds, wheat, and even most grains are considered as instruments, as they can all be purchased and sold as items with value. While instruments most likely seem like just assets, one must note that even debt and equity are considered financial instruments. The ownership of a firm is considered an instrument. Thus, we can conclude that an instrument is any item or a contract, or a medium which works as a vehicle or as a conduit for exchanging value between two different entities.

Types of Instruments

Instruments as economic variables can be adjusted in a way that may bolster the economy. For example, interest rates can be adjusted to influence inflation, and employment can be manipulated to influence economic growth. These adjustments are usually carried out by policymakers and central banks and these instruments can include taxes, assets, performance bonds, and possibly government grant in some cases. Modifying instruments are part of the plan to implement changes in government Econ comic policies. For example, taxes can be influenced to assist in some forms of costs involved in the production of goods and services. Also, interest rates on performance bonds can be influenced in a way that they command lower budgets when they are due.

Instruments like natural resources have a detrimental effect on the environment and the people living close to the surroundings in which extractions are carried out. Thus, to reduce and also correct the effects up to a point, the government might place fees on the extraction of such resources. Also, fees can be placed on the commodities that were produced to influence the cost or the effect of exploiting the environment with the aim of getting the resources used in the manufacturing process.

Instruments in a legal view can include insurance contracts, debt instruments (debt covenants), agreements of transactions, and possibly mortgages. These documents contain the parties involved in the agreements and aims to set out events and terms of the contract. Legal instruments have stringent processes, as there must be paperwork for any asset acquired (like insurance plans and the rest). Also, the occurred of contractual relationships is not rare, as it is perfectly normal to see court given rights and transferred titles. Ina n formal way, a legal instrument is usually presented as an obligation, a duty, or an act that must be fulfilled and they’re usually enforceable by law.

References for “Instrument

https://www.investopedia.com › Managing Wealth › High Net Worth Strategy

https://en.wikipedia.org/wiki/Financial_instrument

https://www.edupristine.com/blog/financial-instruments

www.accaglobal.com/pk/en/student/exam…/f7/…/what-financial-instrument.html

www.businessdictionary.com/definition/financial-instrument.html

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