An asset is a resource that we expect to provide future benefits, so it has economic value. Property can be classified into two main types: Tangible assets, Intangible assets.

An asset is a resource that we expect to provide future benefits, so it has economic value. Property can be classified into two main types.

  • Tangible assets
  • Intangible assets

The value of a tangible asset depends on the physical properties of the asset. (Like:- Aircraft, buildings, land and machinery are examples of tangible assets). Tangible assets are often referred to as fixed assets.

An intangible asset represents a legal claim to certain future financial benefits or benefits. Intangible assets include patents, trademarks and copyrights. The value of an intangible asset has no relation to the physical or to which the claims are recorded. Financial assets such as stocks and bonds are also intangible assets because these assets come in the form of a claim to future benefits and future cash flows. Another term we use for financial assets is financial instrument. We also often refer to certain types of financial instruments as securities, including stocks and bonds.

Every financial instrument has at least two parties. The party that agrees to make future cash payments is the issuer. The investor is the party that owns the financial instrument and therefore has the right to receive the payments made by the issuer.

Financial assets serve two major functions

  • Allows funds to be transferred from institutions that have excess funds to those that need funds to invest in tangible assets.
  • They allow the transfer of funds in such a way that they redistribute the inherent risk associated with cash flows of tangible assets between those seeking and providing funds.

Also, the claims of holders of ultimate assets are generally different from obligations issued by those institutions because of the activities of institutions operating in financial systems, financial intermediaries who transform ultimate obligations into different financial assets preferred by investors.

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