Financial liability definition: contractual cash obligations and variable equity settlements qualify as liabilities, fixed for fixed rights treated as equity. A financial liability exists where a contract obliges an entity to deliver cash or another financial asset, to exchange financial assets or liabilities on potentially unfavourable terms, or where settlement in the entity's own equity instruments results in a non derivative requiring delivery of a variable number of equity instruments or a derivative settled other than by exchanging a fixed cash amount for a fixed number of equity instruments. Rights/options fixed for fixed offered pro rata, fixed price equity conversion options in foreign currency convertible bonds, and puttable instruments classified as equity are treated as equity rather than financial liabilities.