Financial Assets

Financial Assets:

An asset is any possession that has value in an exchange. Assets can be classified as tangible or intangible.

Tangible Assets:

The value of those assets which are tangible depends on particular physical properties-examples include buildings, land, or machinery. Tangible assets may be classified further in to reproducible assets such as machinery, or nonreproducible assets such as land, a mine, or a work of art.

Intangible Assets:

These are those assets which represent legal claims to some future benefit. Their value bears no relation to the form, physical or otherwise, in which the claims are recorded. Financial assets, financial instruments, or securities are intangible assets. For these instruments, the typical future benefit comes in the form of a claim to future cash.

The entity that agress to make future cash payments is called the issuer of the financial asst: the owner of the financial asset is referred to as the investor. Examples of financial assets include the following:

1. A bond issued by the U.S. Department of the Treasury

2. A bond issued by the government of France

3. A bond issued by the State of California

4. A bond issued by General Electric Corporation

5. An automobile loan

6. A home mortgage loan

7. Common stock issued by Digital Equipment Corporation

8. Common stock issued by Toyota Motor Company

A financial asset entitles the owner to future cash flows to be paid by the issuer. he claim can be either an equity or debt claim. The value of any financial asset equals the present value of the expected cash flow. The cash flow is the cash payments.