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Q44 (IAS/2024) Economy › Money, Banking & Inflation › Financial markets overview Official Key

Consider the following : 1. Exchange-Traded Funds (ETF) 2. Motor vehicles 3. Currency swap Which of the above is/are considered financial instruments ?

Result
Your answer: —  ·  Correct: D
Explanation

A financial instrument is a real or virtual document representing a legal agreement that involves any kind of monetary value.[1] Let's analyze each option:

**Exchange-Traded Funds (ETF):** ETFs are similar to Mutual Funds as they involve a basket of securities and are bought and sold on stock exchanges[2], and may contain investments such as shares, debentures, bonds or even commodities.[2] Being tradable securities with monetary value, ETFs are financial instruments.

**Motor vehicles:** Commodities such as precious metals, energy products, raw materials, and agricultural products are traded on global markets, but they do not typically meet the definition of a financial instrument because they do not confer a claim or obligation.[3] Similarly, motor vehicles are physical assets, not financial instruments representing legal agreements of monetary value.

**Currency swaps:** Swaps are derivatives used to manage risks, and represent a contract between[4] two parties for exchange of pre-agreed cash flows of two different financial instruments.[4] A bilateral currency swap is a transaction in which two parties exchange an equivalent amount of money with each other but in different currencies.[5] Currency swaps are clearly financial instruments as they represent contractual agreements with monetary value.

Therefore, only **ETFs (1) and Currency swaps (3)** are financial instruments, making option D correct.

Sources
  1. [1] https://www.investopedia.com/terms/f/financialinstrument.asp
  2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > Exchange Traded Fund (ETF) > p. 271
  3. [3] https://www.investopedia.com/terms/f/financialinstrument.asp
  4. [4] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > Swaps > p. 271
  5. [5] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > CURRENCY SWAP > p. 501
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Q. Consider the following : 1. Exchange-Traded Funds (ETF) 2. Motor vehicles 3. Currency swap Which of the above is/are considered finan…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 6.7/10 · 3.3/10
You're seeing a guest preview. The Verdict and first statement analysis are open. Login with Google to unlock all tabs.

This is a fundamental concept check: distinguishing 'Financial Assets' (claims/contracts) from 'Real Assets' (physical goods). While ETFs and Swaps are standard textbook topics, 'Motor vehicles' acts as a logic trap. Trust the basic definition: if it's a consumer good you drive, it's not a financial instrument.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Are Exchange-Traded Funds (ETFs) considered financial instruments?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > FINANCIAL MARKET > p. 257
Presence: 5/5
“Money Market Terms Relating to Money Market Common Money Market Instruments Capital Market Primary Market vs Secondary Market Financial Instruments in Capital Market Shares Debentures Bonds Some Major Bonds in India Sovereign Gold Bond Scheme Mutual Funds Derivatives Real Estate Investment Trust (REIT) Exchange Traded Fund (ETF)”
Why this source?
  • ETF is explicitly listed under 'Financial Instruments in Capital Market' alongside shares, debentures and bonds.
  • Placement in that list treats ETFs as a category of capital-market instruments.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > Exchange Traded Fund (ETF) > p. 271
Presence: 5/5
“• ETF is similar to Mutual Fund as it also involves a basket of securities except that ETFs are bought and sold throughout the day on stock exchanges while mutual funds are bought and sold based on their price at day's end. • ETF share price fluctuates throughout the day. • An ETF may contain all types of investments such as shares, debentures, bonds or even commodities. • ETFs offer low expense ratio and less broker commissions as compared to individually buying stocks.”
Why this source?
  • Describes ETFs as baskets of securities similar to mutual funds, implying they are investable financial products.
  • States an ETF may contain shares, debentures, bonds or commodities, showing ETF is composed of financial instruments.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > Indian Economy 8.16 > p. 272
Presence: 4/5
“• Examples of ETFs include Bond ETFs, Industry ETFs, Commodity ETFs, Currency ETFs, Gold ETFs, etc. • Government of India presently has two ETFs: CPSE ETF and Bharat-22 ETF. CPSE-ETF comprises shares of 11 Central Public Sector Enterprises. Bharat-22 ETF covers shares of 16 CPSEs, 03 Public Sector Banks and 03 Private Sector Companies. A new Debt ETF was also announced in the Budget 2020-21. • Mutual Fund (MF): MFs can be purchased only at the end of each trading day.; Exchange Traded Fund (ETF): ETFs can be traded like stocks throughout the day. • Mutual Fund (MF): investment is based on a calculated price.; Exchange Traded Fund (ETF): on stock exchanges. • Mutual Fund (MF): MFs typically come with a higher minimum investment requirement than ETFs.; Exchange Traded Fund (ETF): as compared to MFs.”
Why this source?
  • Provides concrete examples and named government ETFs (CPSE, Bharat-22), indicating ETFs function as marketable financial products.
  • Contrasts ETF trading (throughout the day like stocks) with mutual fund mechanics, highlighting their role in financial markets.
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