Financial asset definition:

An asset that derives value because of a contractual claim Assets in the form of stocks, bonds, rights, certificates, bank balances, etc, as distinguished from tangible, physical assets. For example, real property is a physical asset, but shares in a REAL ESTATE INVESTMENT TRUST (REIT) or the stock or bonds of a company that held property as an investment would be financial assets.

The Role of Financial Asset

All financial transactions between buyers and sellers involve the creation or destruction of a special kind of asset: a financial asset.

Characteristics of Financial Asset

Promise future returns to their owners and serve as a store of value Can not be depreciated because they are not physical goods Financial asset are generally represented by a price of paper or information stored in a computer. Their cost of transformation and storage is low.

Types of Financial Assets

Generally there are four categories of financial assets Money, Equities Debt Securities Derivatives

The Value of Money and Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.

In economics, deflation is a decrease in the general price level of goods and services. Deflation benefits those whose income doesnt also decline with prices and, therefore, can buy more goods and services than they could in the past.

A price index (plural: price indices or price indexes) is a normalized average of prices for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these prices, taken as a whole, differ between time periods or geographical locations.

A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. The CPI is defined by the United States Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."

A Producer Price Index (PPI) measures average changes in prices received by domestic producers for their output. It is one of several price indices.

In economics, the GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP stands for gross domestic product, the total value of all final goods and services produced within that economy during a specified period.

Types of Financial Institutions Commercial banks Thrift institutions Credit unions Life insurance companies Pension funds Mutual funds

Types of Financial Intermediaries

Depository Institutions (Banks) Contractual savings institutions Investment intermediaries