Consider the following:
- 1.Exchange-Traded Funds (ETF)
- 2.Motor vehicles
- 3.Currency swap
Which of the above is/are considered financial instruments?
Answer & explanation
Answer: (d) 1 and 3 only
A financial instrument is a tradable financial claim or contract, such as a share, bond, fund unit or derivative. An ETF is a fund whose units trade on a stock exchange, and a currency swap is a foreign exchange derivative contract, so both count. A motor vehicle is a physical good, not a financial claim.
- ✓ 1. ETF units are bought and sold on a stock exchange like a share, and the fund tracks an index such as the Sensex or Nifty.
- ✗ 2. A motor vehicle is a physical asset, in the same class as the machinery and equipment NCERT sets apart from shares and loans. It creates no financial claim between two parties.
- ✓ 3. RBI lists currency swap among the foreign exchange derivative contracts that authorised dealers may offer. Derivatives are one of the instrument types RBI treats as financial market instruments.
Remember · Financial instruments are financial contracts or claims: shares, bonds, fund units (including ETFs) and derivatives such as swaps. Physical goods like vehicles are not.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)
Sources
- SEBI Investor, Understanding Exchange Traded Fund ↗ “Unlike regular mutual funds, ETFs trade like a common stock on the stock exchange and the price of an ETF changes as per the trading in the market takes place.”
- RBI, Master Direction - Risk Management and Inter-Bank Dealings ↗ “Authorised Dealers may offer the following foreign exchange derivative contracts, involving INR or otherwise, to retail users: foreign exchange forward; foreign exchange swap; currency swap”
- RBI, Financial markets: Overview ↗ “ETPs are any electronic system, other than a recognised stock exchange, on which transactions in eligible instruments like securities, money market instruments, foreign exchange instruments, derivatives, etc. are contracted.”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “This includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loans and advances by the central government to state and union territory governments, PSUs and other parties.”
Question and answer: UPSC's official GS Paper I (2024, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·