Finance Paper
A Financial Asset is a legal contract between individuals whereby one party makes promised future payments to the other typically in exchange for immediate cash. The payments are often contingent and require no operation to receive.
Examples of Financial Assets
Mortgage
principle + interest (payments)
lender, bank mortgage,
borrower, mortgager,
buyer of the financial asset
seller of the financial asset
Funds borrowed (purchase price)
Contingencies
Interest rates in the economy
Non-default (credit risk)
Common share
dividends (payments)
Shareholders
Corporations
original purchase price
Contingencies
Direct: When and if declared by the board of directors
Indirect: Earnings ability of the corporation
The individual who makes the promised future payments is called: seller of the financial asset
or writer of the financial asset
or issuer of the financial asset
(Short Position)
The individual who received the promised future payments is called: owner of the financial asset
or holder of the financial asset
or investor
(Long Position)
Private vs Public financial assets
A private financial asset is a financial asset that is either not designed to or currently does not trade in an organized publicly accessible financial asset market.
On the other hand, a public financial asset does trade in an organized publicly accessible financial asset market.
Primary vs Secondary market trades of financial assets
In a primary market trade of a financial asset a new financial asset is created (or destroyed)
there are additional promised future payments
the issuer is directly party to the transaction
there are