Name: Chenee Yvette Torbeles AE 18 TTH 04:00-05:30 PM

Chapter 4. Key Players in the Financial System

Instruction: Give a detailed and comprehensive response to the following questions.

1. Financial Assets

A financial asset is intangible property that represents a claim on ownership of

an entity or contractual rights to future payments. Common types of financial
assets are cash, stocks, bonds, bank deposits, options, future contracts, and
derivatives. For a financial institutions such as a bank, its financial assets are the
loans it makes to borrowers. The value of a financial asset is determined by a
number of factors which include the supply and demand for the financial asset in
the market in which it is traded as well as the risk associated with that asset.

Financial assets provide a much more efficient means for businesses to acquire
capital and thus help spur the economy. Investors are more willing to invest their
money in a financial asset to fund a business when they know that their
investment has a readily available market that will convert it to cash if necessary.

2. Equity Securities
3. Debt Securities

Corporations and governments can raise funds through issuance of publicly

traded loans, these loans are referred to as bonds, notes or debt instruments.
Investors can invest in those debt securities. Investors who purchase debt
securities are also called creditors. Creditors lend money to the issuer for a
specific time period. The issuer will typically make interest payments over the
life of the loan at the end of the loan period also known as low maturity. The
issuer is required to repay the principal balance . principal and interest payments
are also referred to as debt service obligations.