A financial instrument reflects a claim on what is known as an underlying.

Financial instruments can be direct claims on earnings - as in stocks (aka shares outside the United States) - which effectively reflect ownership of the associated company. In this case, the underlying is the firm that issued the stocks.

They can also be claims on cash flows. A fixed income instrument such as a bond allows its owner to receive cash flows at predetermined times during the life of the instrument.

There are also a wide class of instruments known as contigent claims; derivatives such as Options or Futures fall into this category.

Contingent claims do not reflect definitive ownership of the underlyng instrument; instead the owner may elect to take possession at their option.

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