financial asset

The concept of active comes from actīvus, a Latin term. It can be used as a noun or as an adjective: in this case we are going to stay with its meaning as noun. An asset, thus, is a right or a well that has economic value and is owned by an individual or a corporation.

Financial, for its part, is an adjective that refers to what is related to business, the stock market, banks or public accounts. The financial is what is related to the finance (the flows).

We can say, therefore, that a financial asset it's a document which grants its owner the right to get a future profit on behalf of the one who issued the title in question. It's about a intangible asset: does not materialize in a physical sense.

Each financial asset has a double face: on the one hand, it implies wealth for those who have it, but at the same time it represents a liability for whoever issues it. This is because the business who sells a financial asset, receives money from the buyer although later it must pay him profits.

The Actions, the credits and the bonds are examples of financial assets. Suppose the government of a country issues a 10-year bond with a interest rate of 25%. This means that the State will receive money from the person who buys a bond, but a decade later it will have to pay that amount plus a 25% additional. By making use of this financial asset, the State manages to finance itself at the moment, while the buyer of the bond makes an investment from which it will receive its benefit in the future.

It is possible to recognize three main characteristics of financial assets, and these are liquidity, profitability and risk. It is worth mentioning that the class of financial asset we are talking about can affect the particular features of each one of them. On the other hand, there is a very close relationship between the three, since the magnitude of each one of them can affect the remaining two; for example, there will be a higher return and higher risk on a poorly liquid asset.

Let's see below a brief definition of each of these three characteristics of the financial asset:

* cost effectiveness: Its about interest received by the owner when he accepts the risk involved in the temporary assignment of the amount. This variable increases to the extent that the interest on the financial asset also increases;

* risk: As the term itself indicates, it is the probability that the person issuing the financial asset will not meet its obligations. In other words, it is possible to say that this point depends on the solvency of the issuer, and the guarantee that can guarantee it against the debtor. The relationship with profitability is also directly proportional;

* liquidity: This point is more complex than the previous two, but in a few words we can define it as the possibility that the asset is converted into money without losses arising.

According to the liquidity of a financial asset, the following classification can be made:

* money in legal tender: banknote and coins. It is the most liquid type of financial asset that exists, since it is money Properly said;

* money in bank accounts: term, savings and demand deposits;

* short-term public debt: is about values of fixed income whose issuance takes place through an auction, and are called treasure letters;

* business promissory notes: financial assets issued by a private company;

* long-term public debt: Treasury bonds and bonds;

* fixed rent: debt issued by companies private;

* variable income: there are many possibilities, such as financial derivatives or stocks.