0
$\begingroup$

So here are the two pages I was reading to try and understand :

Negotiable Instrument and Financial Asset

Confusion started as both pages use Certificates of Deposits(CDs) as an example.So a CD is both a financial Asset and a Negotiable Instrument ?

Considering the other examples of negotiable instruments like cheque, draft,money order, traveler's cheque I understand that these instruments are basically used to make payments from one person to another or access money from your own account.

And financial assets like stock,bonds,or bank deposits are well, just assets, that is your money kept secured or invested somehow in some place and you might earn a profit from it regularly or use it to bear various expenses. Basically it's your property.

But then, how can CDs be both? Are they financial assets that can be transferred to other people if deemed necessary? Because those articles clearly mention one thing that Negotiable instruments can be transferred. Then bonds,stocks etc can be Negotiable Instruments too? Can't we have someone else as a nominee in those?

This is very confusing please explain. Thanks.

$\endgroup$
1
$\begingroup$

CDs are money market instruments and hence are financial asset. There are traditional and negotiable CDs.

Traditional CDs are like term deposits in banks, and are not tradable. Liquidation before maturity entails penalty charges.

Negotiable CDs can be traded in the secondary market (referred to as money market). The original holder can 'liquidate' them at prices below the face value in the market. At maturity, the holder of the negotiable CD receives the face value of the security from the issuing bank.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.