FIN 501 Chapter Notes - Chapter 4: United States Treasury Security, Fixed Income, Preferred Stock
17 Jul 2012
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Financial assets, such as bonds and stocks, are often called securities and financial instruments as well. Some pay interest implicitly and some pay it explicitly, but the common denominator is that the value of these assets depends, at least for the most part, on interest rates. The reason that these assets pay interest is that they all begin life as a loan of some sort, so they are all debt obligations of some issuer. Table 4. 1: classification of financial assets (major types of financial assets) Money market instruments: debt obligations of large corporations and governments with an original maturity of one year or less. Most money market instruments trade in very large denominations, and most, but not all, are quite liquid. The most familiar example is a treasury bill (t-bill) The bank of canada borrows billions of dollars by selling t-bills to the public bi-weekly.
