General Types and Characteristics

It’s about an asset for the money supplier and of a liability for those requiring money.

Financial assets and liabilities are then two sides of a same coin (investment. -financing).

Before entering into the different possible classifications of the financial assets, the main functions and characteristics of the same are presented.

The main functions assigned to the financial assets are two:

• To distribute the savings between the different economic agents, from those with a condition of surplus to those in need of funds.
• To generate a risk transfer from the issuer of the assets to the receiver of the same. This is so because the assets constitute a payment compromise that will be sensible to the positive or negative oscillations from the activities of the issuer of these assets. The issuer is transferring part of the risk derived from its investment action.

In reference   to the main characteristics of the financial assets:

• Liquidity: They are easy to convert into liquid money thanks to the existence of a market that the issuer of the assets doesn’t fulfill the agreement, the payment of principle and interests. Its worth to emphasize that it is not understood a risk of an asset whatever happens with the oscillations of the quotes on the market.
• So then, in the case of assets issued by private companies. The risk will be associated to the solvency capacity of its activities.
• In reference to the assets issued by the government, for example, the risk would be minimum due to the guarantee that it offers.
• Profitability: it’s referred to the capacity of the asset to produce interests or other yields for the acquirer as a counter measure for its cession of funds and for assuming the risks.

The financial assets can be classified attending different criterions.

According to its profitability:

• Fixed interest securities: are those who have the right to perceive a fixed interest that is calculated as a percentage over the nominal value. So then, the payment of the interests is previously fixed and it doesn’t depend on the results of the company that issues them. This is the case of bonds, liabilities and public debt.
• Variable interest securities: its retribution is not fixed; it depends on the volume of profits obtained by the issuing company. That is the case of shares, whose retributions are the profits and dividends of capital.

The participations in investment funds are also examples of this type of securities.

The profitability goes in function with that of the liquidity and that of the risk. When more liquidity has an asset it will produce less profitability and when more risk is associated with it the more profitability it will be required to renounce to this risk assumption.

So then, to more liquidity less profitability and to more risk more profitability.

The profitability of a financial investment can be considered as a reward to the owners of these assets and not only by renouncing to the liquidity, but also because the security holder has to bear with the additional risk.

We are referring to the risk that happens when the issuers of the securities cannot fulfill the fixed conditions of the emission, in concrete, not to give back the money when the date expires.