Options and warrants are considered which type of financial instruments?

Options and warrants are classified as financial instruments that provide rights to purchase ordinary shares. These instruments grant the holder the ability to buy a specified number of shares at a predetermined price, known as the exercise price, over a specific period. They serve as a way for investors to leverage their investment in a company's equity, often with the potential for significant returns if the company performs well and the share price increases above the exercise price.

This characteristic is essential in capital markets, as it not only allows investors to participate in a company's future growth but also creates an incentive for companies to offer such instruments as part of their capital-raising strategies. The existence of options and warrants can enhance liquidity and provide additional avenues for investment beyond traditional equity ownership.

Other options do not accurately describe the nature of options and warrants. Instruments that provide loans do not grant rights to purchase shares but represent debt obligations. Equity crowdfunding pertains to raising capital directly from the public in exchange for equity, which does not involve options or warrants. Government securities involve fixed-income instruments issued by the government, in contrast to the equity-based nature of options and warrants.