Stocks are financial assets.
A financial asset is a document that grants its owner the right to obtain a future profit from the person who issued the title in question. It is an intangible asset : it is not materialized in a physical sense.
The concept of asset comes from actīvus , a Latin term. It can be used as a noun or as an adjective: in this case we are going to stick with its meaning as a noun . An asset, in this way, is a right or good that has economic value and that is owned by an individual or a corporation.
Financial , for its part, is an adjective that refers to that linked to business, the stock market , banks or public accounts. The financial is what is related to finances (flows).
Examples of financial assets
Each financial asset has a double face: on the one hand, it implies wealth for the person who has it, but at the same time it represents a liability for the person who issues it. This is because the company that sells a financial asset receives money from the buyer although it must later pay profits.
Stocks , credits and bonds are examples of financial assets. Suppose the government of a country issues a 10-year bond with an interest rate of 25% . This means that said State will receive money from whoever buys a bond, but a decade later it will have to pay that amount plus an additional 25% . 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 he will receive a benefit in the future.
Legal tender money is a liquid financial asset.
Main features
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 of them. On the other hand, there is a very close relationship between the three, since the magnitude of each of them can affect the remaining two; For example, there will be a higher return and higher risk in an illiquid asset.
Let's see below a brief definition of each of these three characteristics of the financial asset:
- Profitability : this is the interest that the owner receives when he accepts the risk involved in the temporary transfer 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 guarantees 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 of the asset being converted into money without losses arising.
Liquidity of a financial asset
According to the liquidity of a financial asset, the following classification can be made:
- Money in legal tender : bill and coins. It is the most liquid type of financial asset that exists, since it is money itself.
- Money in bank accounts : term deposits, savings and demand deposits.
- Short-term public debt : these are fixed-income securities whose issuance takes place through an auction, and are called Treasury bills .
- Corporate Notes – Financial assets issued by a private company.
- Long-term public debt : Treasury obligations and bonds.
- Fixed income : debt issued by private companies .
- Variable income : there are many possibilities, such as financial derivatives or shares.