CHAPTER 1: THE INVESTMENT ENVIRONMENT
a.Cash is a financial asset because it is the liability of the government.
The cash does not directly add to the productive capacity of the economy.
Society as a whole, since taxpayers as a group will make up for the liability.
a.The bank loan is a financial liability.
(Lanni's IOU is the bank's financial asset).
The cash Lanni receives is a financial asset.
The new financial asset created is
Lanni's promissory note (that is, its IOU to the bank).
Lanni transfers financial assets (cash) to its software developers.
In return it
gets a real asset, the completed software.
No financial assets are created or
destroyed; cash is simply transferred from one party to another.
c.Lanni gives the real asset (the software) to Microsoft in exchange for a financial
asset, shares of stock in Microsoft .
If Microsoft issues new shares to pay
Lanni, then this would represent the creation of new financial assets.
Lanni exchanges one financial asset (1,500 shares of stock) for another ($120,000).
She gives a financial asset ($50,000 cash) to the bank and gets back another
financial asset (its IOU).
The loan is "destroyed" in the transaction, since it is
retired when paid off, and no longer exists.
Ratio of real to total assets = 30,000/100,000 = .30
*Valued at cost
Ratio of real to total assets = 100,000/100,000