Financial contract

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A financial contract is in finance a standardized contract that the exchange of cash flows has as its object.

General

Occasionally, the term financial contract is narrowed down to futures exchanges ; however, it applies far beyond that. Financial contracts are the object of trading in all financial markets . In addition to the stock exchanges, the financial markets include the money and capital markets , the foreign exchange market , overnight and time money trading as well as international credit transactions . If a commercial object is to be exchanged on them, a contract must be concluded between the buyer and seller, which aims at the exchange of means of payment or claims to means of payment. It includes an entitlement to current or future payments or services . If either Party agrees to make payments to the counterparty as consideration an underlying obtain. When share purchase ( securities order ) pays example shareholders the market value of money , the corporation receives - at issuance - in return on equity and promises future dividends payments and voting rights . If the financial contract is to be transferable to a previously uninvolved third party ( fungibility ), it must be structured as a security ( bearer paper or order paper ), otherwise transferability is more difficult. In the securitization financial contracts are made of a security in the mold in order to facilitate their marketability.

species

In financial contracts, a distinction is made between equity securities and debt securities . Equity securities include shares , GmbH shares , cooperative shares or other shares that are acquired or sold through cash or forward transactions . Receivables include bonds , loans or promissory note loans . Also, insurance contracts are interpreted as financial contracts because against certain payments ( insurance premiums ) indefinite ( probability distributed ) payouts are promised by insurance benefits. Also leasing - and factoring agreements are designated as financial contracts. Even if, in addition to payment claims, financial contracts also include information , structuring , voting or control rights , they focus on monetary agreements. If claims themselves become the subject of the contract, they are derivatives , as they are derived from the original financial contracts ("financial instruments"). A derivative is understood to be a financial contract, the payments of which depend on the prices (exchange rates) and / or the payments of other financial contracts. The financial stocks of the derivatives can be classified as follows:

risk

The time discrepancy between performance and consideration is characteristic of financial contracts. Therefore, financial contracts are associated with more or less great risk for both contracting parties . For this reason, the financial contracts can be designed in such a way that their risk profile meets the interests of the contractual partners. With regard to the interest rate risk, there are variable interest bonds with a lower limit (floor), upper limit (cap) or a limited interest range (collar). Credit and bond risks can be eliminated within the framework of the risk transfer by means of loan collateral , credit insurance or credit default swaps as protection buyer.

The connection between financial contracts and the symmetrical or asymmetrical information of the contractual partners is also discussed in banking management . In the latter, the parties to a financial contract do not have the same information . If performance and consideration do not occur at the same time, the repayment is usually subject to uncertainty for a contractual partner even with symmetrical information . With accurate knowledge of the creditor about the creditworthiness of the borrower or the shareholder on the corporation before the acquisition of a financial contract hidden information ( hidden information ) or covert properties ( hidden characteristics ) with the risk of adverse selection available. Due to the information gap during the contractual relationship is a hidden intention (is hidden intention ) or covert action ( hidden action ) possible for the moral hazard may result.

Fulfillment and accounting

The mutual fulfillment of financial contracts can, depending on the type of financial contract , be postponed the next day after the conclusion of the transaction ( overnight money ), within 2 working days ( cash transaction ) or after a month to several years ( futures , loans , mortgage bonds ). The parties in this case remains a settlement risk , because it is uncertain on the settlement date, whether the consideration will be made of the contractor at the time of its own performance. This performance risk can only affect one contracting party (time deposit) or both (in the case of derivatives or spot or forward transactions).

Financial contracts called in the IFRS financial instruments ( English Financial Instruments ), which in the balance sheet either on the asset side as an asset ( English asset ) or on the liability side as equity ( English equity ) or liability ( english liability be) recorded. According to this, financial instruments are “a contract that simultaneously leads to a financial asset for one company and a financial liability or an equity instrument for the other company” (IAS 32.11). Therefore, the term financial instrument can be used for all types of financial (ization) contracts. If the balance sheet date falls between the conclusion of the transaction and the settlement, it is accounted for as a pending transaction .

Delimitations

The terms financial product and financial contract are sometimes used synonymously in specialist literature ; Klaus Spremann speaks of financial contracts. In the case of financial contracts, the focus is more on the contractual relationship, while in the case of financial products, the focus is on the product itself. The concept of financial product is again broader than that of financial instrument within the meaning of the Securities Trading Act and also includes insurance and credit agreements.

Individual evidence

  1. ↑ Thomas Hartmann-Wendels / Andreas Pfingsten / Martin Weber, Bankbetriebslehre , 2000, p. 2
  2. ^ Andreas Oehler / Matthias Unser, Finanzwirtschaftliches Risk Management , 2013, p. 17
  3. ↑ Dieter Farny, Versicherungsbetriebslehre , 2011, p. 893
  4. ^ Andreas Oehler / Matthias Unser, Finanzwirtschaftliches Risk Management , 2013, p. 17
  5. ↑ Thomas Hartmann-Wendels / Andreas Pfingsten / Martin Weber, Bankbetriebslehre , 2000, p. 9
  6. ↑ Michael Schachtner, Accounting and Corporate Finance , 2008, p. 13
  7. ^ Klaus Spremann, Investment and Financing , 1991, p. 90
  8. ↑ Johannes Schmidt, Basis for advice and obligation to make recommendations for the sale of financial products , 2011, p. 17