Fundamental of Financial Markets & Institutions

Assignment No. 1 Junaid Aftab Abbasi Registration No. 1431-310503

Preston University Islamabad

These tangibles. 1: What is the difference between a financial asset and a tangible asset? Ans. While a real asset. Examples of intangible assets include things like copyrighted ideas. and especially anything that can be physically touched. This definition is worth understanding when attempting to define tangible assets. instead of being hypothetical. are usually the types of collateral you provide for the loan. No. patents. Financial Asset: An asset that derives value because of a contractual claim. houses or boats. Tangible Assets: Tangible can be defined as things that can be perceived by the senses. It obtains its monetary value from a contractual agreement of what it represents. property the business holds. even if they have intangible assets that have the potential to make money in the future. Tangible may mean touchable. A financial asset is an intangible representation of the monetary value of a physical item. and any cash the company currently holds. Most banks won’t offer loans to people without tangible assets. a financial asset is a document that has no fundamental value in of . or are already cash. Possessions included in the list of tangible assets for business include business inventory. and equipment owned by the business. as is the property you own. The amount of money in your bank account is tangible. the plant where the company operates. most tangible assets can be readily converted to cash. or intellectual property. Though these things possibly have a chance of being financially beneficial at a future point. they are not currently something that can be sold for great profit in most cases. In businesses. such as land. has physical value. A lumber company’s real assets might include its current stock of lumber. physical and real assets may be weighed when a business seeks a loan. They are contrasted to things an individual or business may hold that are not tangible. especially if you want to secure a loan. Tangible assets are those holdings of an individual or business that are real and actual. The typical value is future cash flow of these assets.Q. like cars. or real. actual. any machines used to make lumber. On the other hand.

Deposited cash is not considered a physical asset because the bank uses the money to fund its business and agrees to return it when the account holder decides to withdraw it. and bank deposits. . He or she can keep the stock for any length of time or decide to sell it to another investor. A bond represents how much interest is guaranteed to be returned to the investor along with the original loan amount. Stocks are one of the only financial assets that do not have an agreed upon ending date. One of the most common types of financial assets is a certificate of deposit (CD). This process is often used to find out a person’s personal wealth for legal reasons. rather than a real asset. The value of a financial asset can drastically change depending on the point in time it is valued. bonds.itself until it is converted to cash. Money that is deposited into a bank account also counts as a financial asset. Investing in stock means the investor has part ownership of a company and shares in the company’s profits and losses. If the investor withdraws the CD before the end of the contract terms. Common types of financial assets include certificates. the value of stock can change daily depending on the company’s profits. 2: What is the basic principle in determining the price of a financial asset? Ans. Another type of financial asset is a bond. stocks. When cash is put into a bank account. Valuation of financial assets is the process of determining the amount of cash the assets can be converted to. he or she will lose out on the interest payments and be subject to financial penalties. such as his or her ability to pay off a debt. Bonds are often sold by corporations or governments to investors in order to help fund short-term projects. Q No. For example. the proof of the funds is a bank statement that summarizes the value of the account. A CD is an agreement between an investor and a bank in which the investor agrees to keep a set amount of money deposited in the bank in exchange for a guaranteed interest rate. They are a type of legal document detailing the amount of money an investor loaned a borrower and the length of time it needs to be paid. The bank may offer a higher amount of interest payment since the money is to remain untouched for a set period of time.

Q No. Why is it difficult to determine the cash flow of a financial asset? Ans. . 3.