Types of financial assets, Financial Management

Types of Financial Assets

Majority of financial assets used worldwide are in the form of deposits, stocks and debt.

Deposits

Deposits can be made either with banking or non-banking firms. In return, the lender will receive a certificate in case of a fixed deposit and a checking account in case of a savings/current deposit. These serve as payment mechanism to the supplier of funds. Interest will be earned on such deposits.

Stocks

When financial assets are in the form of stock, they represent ownership of the issuing company. Due to this right to ownership, the holder of the stocks will have a share in the firms' profits.

Debt

Unlike the stocks, financial assets in the form of debt raise an obligation on the borrower to repay the amount borrowed. The debt instrument will be a contract entered into by the borrower of funds with the lender of funds, to repay the amount borrowed after a predetermined period and at a certain rate of interest. If there is an asset serving as a collateral to the borrowing, then the holder of the debt instrument will have a priority claim on the asset.

Within this broad classification, financial innovations have brought about a variety of instruments. In stocks, there are preferred stocks and common stocks, with the latter having voting rights. In case of debt instruments, the classifications are much more varied depending on the issuer of securities and other terms and conditions present in the contract. For example, gilt-edged securities are the debt instruments issued by the government. Other classifications of the debt instruments are made as follows: fixed/floating rate bonds, negotiable/non-negotiable instruments, redeemable/irredeemable bonds, convertible/non-convertible debentures etc. Further, these instruments, both stock and debt, enable the issuer to raise funds in domestic as well as foreign currencies.

 

Posted Date: 9/11/2012 3:16:01 AM | Location : United States







Related Discussions:- Types of financial assets, Assignment Help, Ask Question on Types of financial assets, Get Answer, Expert's Help, Types of financial assets Discussions

Write discussion on Types of financial assets
Your posts are moderated
Related Questions
Above the line deductions are certain kinds of deductions that are deducted from your income before the adjusted gross income is computed for tax purposes. Above the line deduct

Security returns are found to be less correlated across countries than within a country. Why can this be? Answer:  Security returns are less correlated possibly because countries

LENDING RATES IN THE CREDIT MARKET One of the crucial decisions involved while extending loans is the lending rate. Intermediaries will base their lending rate decisions on thr

Evaluate the importance of leverages in financial management of small scale companies

Q. Explain about Centralised treasury function? Treasury departments are usually a feature of larger companies than Frantic although it is perhaps beneficial to consider the be

When a borrower uses repo market for fund financing, he has to deliver the securities to the lender. One way to do this is to deliver the collateral to the lender

What risks are associated with direct foreign investment? How do these risks differ from those encountered in domestic investment?

Explain Exchange Rate Risk Exchange-rate risk denotes to the risk the swap bank faces from fluctuating exchange rates throughout the time it takes the bank to lay off a swap it

Management Accounting: Management accounting on the other hand tends to focus internally. Reports generated through management accounting processes will be used by the organisa

Question 1 Describe the Cost Volume Profit analysis. Explain its features, objectives and elements(CVP analysis) Question 2 Write in detail about the classification of