Value of Financial Assets
Have you ever heard about Financial assets?
What do you think about it? Is it a common word or an uncommon word?
Okay, let see what precisely Financial Assets
An asset that derives value from a contractual claim is called Financial assets. Financial assets are non-physical assets. Those can be easily converted into cash like bank balance, shares,treasury bills, short-term investments, commercial papers, bills receivables etc…
A financial asset is a kind of tangible liquid assets. Financial assets do not have any real worth. Cash, stocks, bank deposits and bonds are the example for the business assets.
Common Types of Financial Assets
There are three common types of financial assets, including Stocks, Bonds and Certificate of deposits (CD).The stocks are the kind of Financial assets with no set of ending date. When investor buying stocks become the owner of a company and shares in the company profits or losses. Stocks can
be kept any period until the shareholder decides to sell another investor.
Another common type of financial assets is bonds, which are usually sold by the government or companies for the short-term project. Bonds kind of legal document which states how much money is owed and the interest rate being paid. Bonds with the maturity date.
The certificate of deposits (CD) are another popular type of financial assets.it is allows the investor to deposit an amount of money in the bank for a set of the period with a guaranteed interest rate. The bank may be offering a higher amount of interest when the payment is remaining untouched for a collection of the period. If the investor fails to stay the CD until the end of contract terms, he or she will lose interest payment.
Similarities and Differences Between Financial Assets and Other Assets
The main similarity between financial assets (non-physical assets) and other assets (physical
assets) is that they both represent an economic resource and they can be easily converted into
value and also both assets can be recorded in the firm’s balance sheet.
The most of assets are categorized into two, either tangible and intangible or real. First, mention
that the financial assets that derive value from a contractual claim are called financial assets. These
underlying assets may be either invisible or real. The physical assets are deriving their value
from substances and properties, such as actual states and commodities.
Pros and Cons of Financial Assets
Financial assets like checking accounts, savings accounts and money market accounts are easily converted into cash for a paying bill. Keeping a tremendous amount of money in an illiquid investment, it is
may more significant results in a high-interest credit card to pay bills, increasing debt and it is negatively affected to the retirement and other investment goals. The case of the stocks, an investor has to sell stock and he /she wait for the settlement date to receive the cash.
And also advantages for keeping money in savings accounts results in more significant conservation of capital. The Federal Insurance Corporation typically covers cash in bank accounts(FDIC) and its give reserve against loss.
Financial assets like checking accounts and savings accounts have a more limited return on investments. But certificate of deposits (CD) and money market accounts restrict to withdrawals for months or years. When interest rates fall, investors face moving their money to potentially lower income investment.