Introduction International Accounting Standards (IAS) defines a financial instrument as ‘a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity’ (32). In simple language, a financial instrument can be regarded as an asset whether tangible or intangible, that has agreed to make future cash payments in form of constant cash flows or otherwise. An investor is the owner of a financial instrument. Financial assets are classified into equity and debt based financial instrument. Examples of debt based financial statements is a loan made by an investor to the owner of the asset; it includes both government and corporate issued bonds and mortgage-backed securities (Fabozzi 20). Examples of equity based financial instruments are shares in ordinary and preference stocks which entails ownership of the asset. Bond is an instrument where the government or corporate entities borrow money from investors in return for a predetermined rate of interest over a specified period of time; the principal amount is paid at the end of the maturity period. Common stocks refer to the representation of ownership of a corporation. Holders of common stock are basically the owners of a corporation; they are entitled to dividends at the end of the financial year. In the event of winding up of a company, common stockholders will only be paid if the preferred shareholders and other creditors have been paid in full. Financial institutions are establishments which collect funds from investors and place them in as financial assets. Financial institutions include: commercial banks, security houses, investment dealers and insurance companies. These entities focus mainly on dealing with financial transactions such as accepting of deposits, taking out loans and exchange of currencies. Financial markets refer to markets for the purchase and sale of trade assets such as stocks, bonds, bill of exchange and derivatives (Jorion 45). They work as exchanges for capital and credit. Examples of financial markets include: the New York Stock Exchange (NYSE), Forex markets and the Nairobi Stock Exchange (NSE). Financial instruments, institutions and markets are connected in the sense that, financial institutions operate in the financial markets in the trade of financial instruments. Financial instruments are mainly of a long-term nature. The most popular type of financial instrument is stocks. Advantages of stocks include: High returns in relation to other investments, loss of stock is limited to the initial investment, they offer limited legal liability and they are very liquid (can be converted into cash easily). Stockholders benefit through capital gains and dividends. Capital gain is the increase in value of the initial investment while a dividend is a share of the profit generated by a company. The more stocks you hold the more dividends you enjoy. The question as to what company’s stock to invest in arises, it requires use of raw statistics and market reports to ascertain which stock gives a handsome return. A good decision is to invest in STI Exchange traded fund (STL-ETF). Explain how ETFs operates? Exchange Traded Fund is made up of a b