Money and Outright: Difference between pages

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Historically, and narrowly, money referred to cash (notes and coins) in official currency backed by the relevant government.  
1.


Such money may be legal tender.
In relation to derivative financial instruments, an outright is one which commits both parties to the contracted exchange at maturity.


Examples include forward foreign exchange contracts, and forward rate agreements.


More generally, money is anything accepted for the settlement of debts in an economy or jurisdiction.


Outright instruments are contrasted with options.


To the economist, money is whatever is used for four roles:
Under an option, one of the parties has a choice about whether to make the exchange at maturity, and will only do so if it is in their interests to do so at the time, based on prevailing market prices.
# Medium of exchange.
# Unit of account.
# Store of value.
# Standard for deferred payment.




''Fiat money.''
2.


Money, then, can be many things, but most often today is ''fiat'' (let it be) money, i.e. tokens provided by a government and accepted by them for payment of taxes, or abstract representations of it. The latter are mostly as electronic representations in the accounts of banks and other monetary financial institutions, including [[central bank]]s. Most money in developed countries consists of these records rather than of the tokens issued as fiat money.
The term 'outright' is also used to refer to simpler financial instruments, which can also be constructed synthetically, from a combination of other instruments.


'''Example'''


''Commodity money.''
A two-year zero coupon deposit can be described as an outright instrument to produce a single cash flow at the end of two years.


In the past money has been commodity money, for example gold or silver or valuable spices or shells, the value of which is in the valuable material or object rather than a nominal value ascribed to (a portion of) it. A government can issue tokens (e.g. notes or coins) exchangeable for a fixed quantity of such a commodity. Such tokens are known as representative money.
These cash flows can also be constructed as a synthetic deposit, as a combination of a one year zero coupon deposit, linked with a forward contract to reinvest the maturity proceeds at Time 1 year for a further year at a pre-agreed rate. This synthetic two-year deposit has the identical cash flow pattern to the outright two-year deposit.




== See also ==
== See also ==
* [[Anti money laundering]]  (AML)
* [[Derivative instrument]]
* [[At the money]]
* [[Forward foreign exchange contract]]
* [[Barter]]
* [[Option]]
* [[Broad money]]
* [[Synthetic]]
* [[Call money]]
* [[Capital]]
* [[Cash]]
* [[Central bank money]]
* [[Commercial bank money]]
* [[Commodity]]
* [[Credit]]
* [[Cryptocurrency]]
* [[Currency]]
* [[Defined contribution pension scheme]]  = money purchase arrangement
* [[Digital public money]]
* [[Divisia money]]
* [[e-money]]
* [[Fiat money]]
* [[Finance ]]
* [[Financial stability]]
* [[Fungible]]
* [[Gold standard]]
* [[Hard money]]
* [[Helicopter money]]
* [[Hot money]]
* [[In the money]]
* [[International money market]]
* [[Legal tender]]
* [[Materialistic]]
* [[Mint]]
* [[Monetary]]
* [[Monetisation]]
* [[Money and Pensions Service]]
* [[Money laundering]]
* [[Money management]]
* [[Money market]]
* [[Money market fund]]
* [[Money market instrument]]
* [[Money market lines]]
* [[Money market yield]]
* [[Money mule]]
* [[Money order]]
* [[Money purchase]]  -  pensions
* [[Money supply]]
* [[Money terms]]
* [[Narrow money]]
* [[Out of the money]]
* [[Overnight money]]
* [[Positive Money]]
* [[Private money]]
* [[Public money]]
* [[Quantity theory of money]]
* [[Retention money guarantee]]
* [[Seigniorage]]
* [[Time value of money]]  (TVM)
* [[Token]]
* [[Value for money]]  (VFM)
* [[Wealth]]
 
 
== External link ==
[http://bankunderground.co.uk/2015/08/21/monies-joining-economic-and-legal-perspectives/ Bank Underground blog: Monies - Joining economic and legal perspectives]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Financial_products_and_markets]]

Revision as of 12:16, 13 November 2015

1.

In relation to derivative financial instruments, an outright is one which commits both parties to the contracted exchange at maturity.

Examples include forward foreign exchange contracts, and forward rate agreements.


Outright instruments are contrasted with options.

Under an option, one of the parties has a choice about whether to make the exchange at maturity, and will only do so if it is in their interests to do so at the time, based on prevailing market prices.


2.

The term 'outright' is also used to refer to simpler financial instruments, which can also be constructed synthetically, from a combination of other instruments.

Example

A two-year zero coupon deposit can be described as an outright instrument to produce a single cash flow at the end of two years.

These cash flows can also be constructed as a synthetic deposit, as a combination of a one year zero coupon deposit, linked with a forward contract to reinvest the maturity proceeds at Time 1 year for a further year at a pre-agreed rate. This synthetic two-year deposit has the identical cash flow pattern to the outright two-year deposit.


See also