Financial assets are titles or accounting entries that give the buyer the right to receive future income from the seller. They can be issued by economic entities (companies, autonomous communities, governments …) and do not usually have a physical value, as it does with real assets (such as a car or a house). Furthermore, unlike real assets, they do not increase the general wealth of a country and are not counted in GDP, although they encourage the mobilization of real economic resources, and thus contribute to the growth of the economy. Thanks to these assets, the buyer obtains profitability with the money he invests, while the seller is financed. The financial assets are, in summary, rights acquired by the buyer on the real assets of the issuer, and the cash they generate.
Main characteristics of financial assets
Regarding the characteristics that best define financial assets, three should be pointed out.
- Liquidity It is the ability to transform the asset into money without suffering losses. Money is the most liquid asset, while later there are different types of deposits and products such as bonds, public funds or obligations.
- Risk It is determined by both the guarantees offered by the seller and its solvency. The greater the likelihood of the seller fulfilling his commitment, the lower the profitability of the asset.
- Profitability As a consideration for accepting the risk of the transfer of your money, the buyer gets an interest. The higher, the better the return on the asset.
Classification of financial assets
The main classification among financial assets distinguishes between those that are fixed income and those of variable income.
- Fixed income . Fixed income assets are those issued by public administrations or companies. The former are characterized by their lower risk, due to the great financial support of the entities that issue them. These are committed to return the capital invested after a period of time previously established and a certain profitability. As examples, we could cite treasury bills or corporate promissory notes.
- Equities In this type of assets neither the return nor the recovery of the invested capital are guaranteed, and the investment may even be lost. Its profitability depends on different factors such as the balance sheet of the entity that sells the asset, or the economic situation of the market where it operates. The main example of this type of assets are the shares.
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According to its expiration term
Depending on their maturity term, financial assets can be divided between short and long-term assets.
- Monetary assets and short term . Your contract is amortized over a short period of time (usually less than a year) and usually offer low returns.
- Assets in the medium and long term . These are assets with a duration of more than twelve months and which present more risks due to the possibility of value fluctuation when extending their term.