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

1. Mortgage

 principle + interest (payments)

lender, bank mortgage, borrower, mortgager,

buyer of the financial asset seller of the financial asset

Funds borrowed (purchase price) 

Contingencies

A. Interest rates in the economy

B. Non-default (credit risk)

2. 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