Finance Notes – Market to Book
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
? principle + interest (payments)lender, bank mortgage, borrower, mortgager,
buyer of the financial asset seller of the financial asset
?Funds borrowed (purchase price) ?
A. Interest rates in the economy
B. Non-default (credit risk)
2. Common share
? dividends (payments) ?
? 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
The individual who received the promised future payments is called: owner of the financial asset
or holder of the financial asset
Private vs Public financial assets
A private financial asset is a financial asset that is either not designed to or currently does
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 costs/benefits to the issuer
In a secondary market trade, ownership of a financial asset is exchanged between…