financial asset

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A financial asset is any kind of negotiable security that can be bought or sold. This can mean an investment in capital in a companyloanstreasury or Exchequer billbondsdebentures, promissory notes (the official form of an “I.O.U.”, or “I Owe You”), retirement plans, real-estate, commodities or participating as a shareholder in a business (stocks).

A financial asset gives the right to its holder to receive future payment from the issuer. This is a document that creates both rights and obligations.

  • I. The issuer (person/entity that emits or sells the document) creates an obligation to keep a promise of payment of the amount, in the fashion and when stipulated.
  • II. The holder (person/entity who acquired or bought the document) has the right to receive payment.
The idea of a financial asset is associated with two fundamental concepts in finance: the concept of benefits or income and the concept of risk.

The holder of an assets looks to benefit him/herself while also runs the risk of losing the investment (and may have to pay interest). There are typically two types of financial assets:
  • Securities (stocks or part of the capital of a business).
  •  Debt titles (government bonds, company bonds, loans, etc).
One of the most important characteristics of financial assets is that they allow you to diversify your investment risk in different areas other than just fixed-income assets. For businesses, this diversification means that if they have, for example, extra cash on hand, they can use financial assets to create new sources of income, more profitable ways to save money (than just savings accounts) and protect their earnings when the market turns volatile or from currency debasements.


Personal Finance Tips : Examples of Financial Assets

Personal Finance Tips : Examples of Financial Assets