Chapter # 2: Organizing Financial Assets

CHAPTER # 2
ORGANIZING FINANCIAL ASSETS

Financial Assets
 Financial assets are financial claims on the
issuer of the securities like govt or
corporations.
 An investor can invest in three different ways
1. Investing in non marketable assets
2. Investing directly
3. Investing indirectly
 EXHIBIT2-1
 Major types of financial assets
 DIRECT INVESTING
 Nonmarketable Savings deposits
 Certificates of deposit
 Money market deposit accounts
 U.S. savings bonds
 Money market Treasury bills
 Negotiable certificates of deposit
 Commercial paper
 Eurodollars
 Repurchase agreements
 Banker’s acceptances
 Capital market Fixed income
 Treasuries
 Agencies
 Municipals
 Corporates
 Equities
 Preferred stock
 Common stock
 Derivatives market Options
 Future contracts
 INDIRECT INVESTING
 Investment companies Unit investment trust
 Open end
 Money market mutual fund
 Stock, bond, and income funds
 Closed end
 Exchange-traded funds
Non Marketable Financial
Assets
 Personal transaction between the owner and
the issuer
 Safe and very liquid investments
 Types of non marketable financial assets
1. Savings accounts
 Opened in commercial banks and other
financial institutions
 Very safe and provide regular return
 Interest rate is determined by govt
2.Non negotiable certifcates of
deposits
 Offered by commercial banks and other
financial institutions.
 They are infact saving certificates known as
CoD
 Have different maturities
 Return depends on maturity
 Often issued at their own terms
 Penalty charged for early withdrawals
3.Money market deposit
accounts
 Offered by financial insttutions
 Terms on these instruments are very relaxed
 Can be opened with minimum deposit
 Offer competitive rates and are insured
 There is no limit on no. of deposits and
withdrawals
4. US Govt bonds/ Govt bonds
 These are non marketable instruments issued
by govt
 Non transferable, non negotiable and cannot be
used for collateral
 Purchased from treasury through fin.
Institutions
 Issued in different denominations
Money market securities
 Market for short term, highly liquid and low
risk assets
 They are debt instruments issued by govt,
financial institutions, and banks
 Maturity is of one day to one year and mostly
less then 90 days
 Some are negotiable while others are non
negotiable
 Investors can invest in them directly or
indirectly
Types of Money market
securities
1. Treasury Bills
 Short term, risk free money market instrument
 They are fully gauranteed
 Issued at discount
 The actual yield on a bond can be calculated as:
Investment yield=FV-PP/PP*3/Maturity in days

 Outstanding bonds can be further bought and
sold in secondary market

Negotiable certificates of
deposit
 These certificates are issued by financial
institutions when an investor makes deposit
 Represent marketable deposit liability of issuer
 They are considered negotiable because they
can be traded in market before maturity
 The deposit is maintained in banks until
maturity, at which the depositor receives
deposited amount +interest
3. Commercial Paper
 A short term unsecured promissory note issued by large
financially strong corporations
 Issued at discount directly or indirectly
 Secondary market for commercial papers is weak
4. Eurodollars:
 Deposits in dollars held in foreign banks
 This type of market originated in Europe
 Eurodollar deposits consist of both time deposit and
CDs
 Maturities are short term most often less than six
months
5. Repurchase agreement
 An agreement between borrower and lender to sell
and repurchase govt securities
 The borrower is a financial institution and lender
an investor
 Borrower sells repurchase agreement to investor
and agrees to repurchase it back in short time, often
overnight
 The difference between sale price and purchase
price is interest of investor
 A tool used by central banks to control money
suuply
6. Banker’s acceptance
 A time draft drawn on a bank by a customer,in
which bank agrees to pay a particular amount
at some future date.
 They are negotiable and can be sold at discount
 Used in international trade
 Maturity ranges from 30 to 180 days

Chapter # 2: Organizing Financial Assets

Uploaded by

Copyright:

Available Formats

Chapter # 2: Organizing Financial Assets

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter # 2: Organizing Financial Assets

Uploaded by

Copyright:

Available Formats

CHAPTER # 2

ORGANIZING FINANCIAL ASSETS

 They are fully gauranteed

 The actual yield on a bond can be calculated as:

Investment yield=FV-PP/PP*3/Maturity in days

sold in secondary market

You might also like