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Characteristics of financial assets (c) Financial assets are fungible: that is,
There are at least three main characteristics they can easily be changed into another
that describe financial assets, as explained form and substituted for other assets.
below: Thus, a bond or a share can quickly
(a) One of the basic characteristics of be converted into any other asset the
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financial assets is that they are promises holder desires.
for future returns to the holder. If you
buy a share from a certain company, Types and importance of
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it implies that you own part of that financial assets investment
company and you are promised to Financial assets, as identified earlier
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receive a certain return in a form of in the chapter, are subdivided into two
a share of profit and capital growth, main groups, which are variable income
respectively known as dividends
and capital gain. Similarly, buying a bearing investments and fixed income
bond issued by the government or by bearing investments. The two categories
a corporation, you become a creditor to are discussed in the following subsections,
the government or to that corporation. followed by elaboration of importance of
Holding that bond promises you to financial assets investment.
get returns in a form of fixed interest
income over a certain period. Variable income-bearing
investment
(b) Financial assets serve as store of value
(purchasing power). Their value rests Variable income-bearing investments are
on faith that the issuer will honour their those in which the income to be received
contractual promise to pay. Financial varies from one period to another. The
assets do not physically depreciate in most popular variable income bearing
the same way as physical goods wear investment is the common stock, which is
out. This is because their physical also known as “ordinary share”. Common
condition is not relevant in determining stock is an investment that gives an investor
their market value (price). The value (shareholder) a right to own a part of the
of financial assets can be affected by firm’s share capital. Such ownership gives
demand and supply, company related a right to an investor to fully participate
factors, interest rates, politics, current in deliberations that affect the success of
events, natural calamities, exchange the investment firm. The following are the
rates, etc. For example, a share benefits accrued to an investor of ordinary
certificate not more or less valuable shares:
because of the quality of paper used
to print it.
Student’s Book Form Five
101
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ACCOUNTANCY_DUMMY_23 JUNE.indd 101
ACCOUNTANCY_DUMMY_23 JUNE.indd 101 23/06/2024 17:35