Introduction

The financing of the transition process regarding Southeast European countries was principally
based on international finance. The financial policies of the International Financial Institutions
are initiated and implemented through the financial instruments introduced by the relevant
body within the region of southeast Europe.The present paper, through studying the financial
instruments of International Financial Institutions for Southeastern Europe as well as the
financing provided by the countries of the region, will attempt to examine their structure and to
determine the suitability and the degree of their effectiveness. For this purpose, the finance
and the financial instruments of the main creditors of the region will be examined, namely the
International Monetary Fund (IMF), the World Bank Group (WBG) and the European Union
(EU).The above institutions manage the vast majority of finance in the area and the use of
financial instruments is directly related to the associated conditionalities of their financial
policies. Their almost direct involvement in the transition process determined the key aspects
of the attempted transformation so that the financing towards the Southeast European states
exhibits specific common characteristics

The methodology chosen for the analysis that follows is descriptive research with qualitative
analysis and critical review of content sources. The collection of data and data on financial flows
in the study area was based primarily on reports and publicly evidence of international funding
institutions and secondarily in the international literature.At first, studied the financial tools
used by each institution in the region of Southeast

Europe and also plotted, with the greatest accuracy, the financial flows for each country in
Southeast Europe separately. The next chapter is devoted to the description of the effort for
the systematic organization of international finance with the creation of joint actions to form a
more integrated approach. Finally attempts a brief recording the options of institutions in
relation to the direction of funding, the philosophy governing the implementation of programs
and the final use of funding by the recipient countries.

International financial management

International financial management, also known as international finance, is the management of
finance in an international business environment; that is, trading and making money through
the exchange of foreign currency. The international financial activities help the organizations to
connect with international dealings with overseas business partners- customers, suppliers,
lenders etc. It is also used by government organization and non-profit institutions.

History and background

During the post-war years, the GATT was established in order to improve trade. It removed the
trade barriers notably over the years, as a result of which international trade grew manifold.
The financial participation of the trader's exporters and importers and the international
transactions flowed significantly. It started when different countries started “liberalizing” i.e.
when countries agreed to open doors for each other and traded. The advancement of
technology and liberalization resulted in the idea of financial management both domestically
and globally.

Domestic vs international financial management (IFM)

Financial Systems may be classified as domestic or overseas, closed or open. A ‘domestic’ is one
inside a country. Thus financial system in the United States, is an international financial system
from the India’s view. The mean and objective of both domestic and international financial
management remains the same but the dimensions and dynamics broaden drastically. Foreign
currency, market imperfections, enhanced opportunity sets and political risks are four broader
heads under which IFM can be differentiated from financial management (FM). The goal of IFM
is not only limited to maximization of shareholders but also stakeholders.

Meaning
A financial instrument is a monetary contract between two parties which can be created,
traded, modified and settled. It can be evidence of ownership of an asset.

Definition
“A financial instrument is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.”

The Association of Chartered Certified Accountants (ACCA)

These instruments can be divided into two types cash instruments and derivative instruments
or can be divided based on asset class like debt instrument or equity instrument. The third
unique category is of foreign exchange instruments.

Debt vs Equity Instruments

Debt and Equity instruments differentiated based on them based on the type of claim that the
holder has on it. When the claim os for a fixed dollar amount it is a debt instrument. For
example a car loan, Infrastructure bonds issued by the Government of India, Bonds issued by
private companies. Debt instruments can be either short term less than one year or long term
with tenure greater than one year.
In comparison to this equity, instruments obligate the issuer of the financial instrument to pay
the holder an amount only if profits have been earned and after the debt payments are made.
Common examples of equity instruments are common stock or a partnership share in the
business. However, some securities fall in both these categories and have attributes of both.
One such example is preferred shares, convertible bonds.

Foreign Exchange
Foreign exchange does not fall into any of the above buckets and has its category. Foreign
exchange instruments in the form of cash are spot foreign exchange and in the form of
exchange-traded derivatives are currency futures and in the over the counter derivatives are
foreign exchange options and outright forwards.

Instruments based on Types

Long term depts

1) Cash vs Derivatives
Cash instruments can be defined as the instruments whose value can be determined directly in
the markets and securities which are readily transferrable. Derivative instruments derive their
value and characteristics from an underlying asset, index, common stock. They can either be
exchange-traded or over the counter derivatives.

2) Bonds
Bond is a type of long term debt instrument in which the issuer owes the holder debt and is
obligated to pay interest (coupon payments) for the specified amount of period (maturity date)
at a later date.

3) Loans
Loan is basically lending money from individuals, organizations, banks, trust etc. Till the time
the entire amount is given back the recipient has to pay interest.

4) Bond Futures
Futures contract is a predetermined contract where the buyer or the seller agrees to buy or sell
something at a predetermined time and a predetermined price in the future. The asset is
usually a commodity or a financial instrument. In the case of bond futures, it is a bond.
5) Options on Bonds
Options gibe the buyer the right but not the obligation to buy or sell the underlying asset on the
option at a specified date and a specified price depending on the type of option. In case of
options on bonds, the underlying asset bonds.

6) Interest rate swap

It is a type of interest rate derivate which involves exchanging interest rates between two
parties.

7) Interest rate cap and floor

This again is a type of interest rate derivative where the underlying is the interest rate and in
case of interest rate cap the buyer receives payment if the interest rate exceeds the agreed
strike price. Similarly, for the interest rate floor, the buyer receives payments if the interest rate
is lower than the specified strike price.

8) Exotic derivatives
These are customized derivative products and are complex to the generally traded vanilla
options.

T bills, Deposits, Certificate of Deposits – Treasury bills popularly known as T bills are issued by
the government and are available for 30,60,90,120,360 days. They are considered to be very
liquid. Deposits can be a savings bank account, current account. Certificate of deposits are again
issued by the government and are very liquid.

9) Foreign exchange instruments

These include currency swaps, foreign exchange options, foreign exchange swaps and are
mainly related to currencies.

Short term depts

1) Bills
A United States Treasury security is an IOU from the US Government. It is a government debt instrument
issued by the United States Department of the Treasury to finance government spending as an
alternative to taxation. Treasury securities are often referred to simply as Treasuries.

2) Deposits
 A deposit account is a savings account, current account or any other type of bank account that allows
money to be deposited and withdrawn by the account holder. These transactions are recorded on the
bank’s books, and the resulting balance is recorded as a liability for the bank and represents the amount
owed by the bank to the customer. Some banks may charge a fee for this service, while others may pay
the customer interest on the funds deposited.

3) Certificates of Deposit
A certificate of deposit (CD) is a time deposit, a financial product commonly sold in the United
States and elsewhere by banks, thrift institutions, and credit unions.

4) Short-term interest rate futures

An interest rate future is a financial derivative with an interest-bearing instrument as the
underlying asset.

5) Forward Rate Agreement

A forward rate agreement (FRA)is an interest rate derivative (IRD). In particular, it is a linear IRD
with strong associations with interest rate swaps (IRS)..

Jobs related to Financial Instruments

Some of the jobs related to financial instruments are as follows:

1. Derivative Strategist
A derivatives strategist works with products like swaps, futures, options, variance swaps,
dispersion, exotic and hybrid options. The main focus is on clients such as institutional investors
like hedge funds, asset managers, pensions, endowments and insurance. A derivative strategist
is responsible for generating trade ideas on bespoke client requests such as volatility, macro
cross-asset, hedging, etc. He participates in the sales pitch and strategy presentations for
various products/strategies. He assists in writing strategy papers along with corresponding
backtesting.

2. Treasury Analyst
A treasury analyst is in charge of an organization’s financial activity, managing cash flow, credit,
income, asset levels, and liability obligations. Their exact job duties may vary depending on
their employer (for example, whether they work at businesses, non-profit organizations, or
government agencies). Generally, though, these professionals coordinate with all internal
finance, accounting, and accounts departments to ensure correct money management.
Treasury analysts may also be tasked with analyzing financial patterns and making projections
for income and expenses, as well as assisting in the development of investment strategies.

3. Market Risk Analyst

Market risk analysts provide a company or investor with information on market trends. Risk
analysts must have an overall grasp of the industry in which they are conducting research in
order to be able to provide a comprehensive market assessment. Information provided by
analysts may be used by a company to inform decisions about possible investments and
proposed ventures. Market risk analysts perform research to determine the probability of asset
loss or reward from investments in their particular industry. Tasks may include

 Conducting statistical analyses

 Developing risk management systems
 Consulting with securities traders
 Reporting and presenting research results

4. Equity Research Associate

Equity research associates play a significant role in putting together the research reports and
other information that investors receive on stocks, bonds and mutual funds. Their work
involves extensive research and number-crunching to building expertise on particular
companies or a specific industry. An equity research associate is a cross between a corporate
finance analyst and a statistician. Associates are responsible for researching companies,
projecting earnings, following overall market trends and producing research reports on the
companies they follow.

5. Equity Analyst
The role of an equity analyst is to analyze financial data and public records of companies, and
use this analysis to determine the value of the company’s stock and to predict the company’s
future financial picture. This job is focused heavily on research and analysis.

Conclusion:
There are a lot of financial instruments, but each financial instrument serves the purpose and
needs of an investor. For a risk-averse investor investing in the bond market would be a better
option than investing inequities. Likewise investing in the currency market depends on the
choice and objective of the investor. For some businesses dealing with imports and exports
investing in currencies would be the right option!