Unit 4 - Assets & Liabilities (3-9-16)

Financial Sector

1) Financial Assets - stocks or bonds that provide expected future benefits, it benefits the owner only if the issuer of the asset meet certain obligations

2) Financial Liabilities - it is incurred by the issuer of a financial asset to stand behind the issues asset

3) Interest Rate - price paid for the use of a financial asset

4) Stocks - financial assets that convey ownership in a corporation

5) Bonds - promise to pay a certain amount of money plus interest in the future


What Banks Do

• a bank is a financial intermediary
• uses liquid assets (bank deposits) to finance the investments of borrowers
• process known as "fractional reserve banking" = a system in which depository institutions hold liquid assets less than the amount of deposits

Can take the form of
1) Currency in bank vaults
2) Bank reserves - deposits held at federal reserve

T-Account (Balance Sheet): statements of assets and liabilities

Assets: (Amount Owned)

• items to which a bank holds legal claim
• uses of funds by financial intermediaries
• capital stock
• owners equity

Liabilities: (Amount Owed)

• legal claims against a bank