Solution

The financial instrument issued by Entity A is a foreign currency convertible bond. This is because the bond is denominated in a foreign currency (USD), but it can be converted into equity shares of the issuer upon the holder's option.

The bond has a face value of USD 100 and carries a fixed coupon rate of 6% per annum. This means that the holder of the bond will receive interest payments of 6% per annum on the face value of the bond until the bond is converted into equity shares of the issuer.

The bond is convertible into 1,000 equity shares of the issuer. This means that the holder of the bond has the option to convert the bond into equity shares of the issuer at a predetermined ratio. The conversion ratio is fixed at 1,000 equity shares per bond, which means that upon conversion, the holder will receive 1,000 equity shares of the issuer for each bond held.

It is important to note that the specific classification of the instrument as either equity or financial liability will depend on the specific terms and conditions of the instrument.

In this case, the bond has a fixed conversion ratio, and the holder has the option to convert the bond into equity shares of the issuer upon maturity or at any time before maturity. Since the holder has the option to convert the bond into equity shares of the issuer, it is likely that the instrument will be classified as a compound financial instrument containing both a liability and an equity component. The specific classification will depend on the specific terms and conditions of the instrument, including the fair value of the equity component and the allocation of the proceeds between the liability and equity components.