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Consider the following financial instruments: (a) Company A loans Company B $400 000 repayable in two years. (b) Company C acquires 10 000 shares in...
Consider the following financial instruments:
(a) Company A loans Company B $400 000 repayable in two years.
(b) Company C acquires 10 000 shares in Company D at a price of $5.00 per share.
(c) Company E acquires 100 000 call options in Company F, which provides Company E with the right to acquire shares in Company F for $11.00 per share in three years' time. The options cost Company E $2.00 each to buy and were acquired when the market price of Company F's shares was $11.00.
The options were written by Company G, meaning that if Company E decides to exercise the options to buy shares—which would happen if the share price rises above the exercise price of $10.50—then Company G would need to go to the market and acquire the shares in Company F to satisfy its contractual obligation to Company E. Required: Determine whether financial assets, financial liabilities or equity instruments are in existence. Provide detailed explanations for your answer.
