Financial assets are liquid assets that derive their value from a contractual right or ownership claim. They include cash, stocks, bonds, mutual funds, and bank deposits. Financial assets are different from real assets, such as land, buildings, and machinery, which have physical existence and intrinsic value.

Financial assets are important for both individuals and businesses, as they provide a source of income, wealth, and liquidity. Financial assets can also help diversify risk, hedge against inflation, and achieve long-term financial goals.

In this blog post, we will explore the characteristics of financial assets, such as:

• Return: The amount of money that an asset generates over a period of time, expressed as a percentage of its initial value. Return can be either fixed or variable, depending on the type of asset. For example, a bond pays a fixed interest rate, while a stock pays a variable dividend.
• Risk: The uncertainty or variability of the return of an asset. Risk can be measured by the standard deviation or the volatility of the return. Risk can be either systematic or unsystematic, depending on the source of uncertainty. For example, inflation is a systematic risk that affects all assets, while bankruptcy is an unsystematic risk that affects only a specific asset.
• Liquidity: The ease and speed with which an asset can be converted into cash without losing much of its value. Liquidity can be affected by the demand and supply of the asset, the transaction costs, and the market conditions. For example, cash is the most liquid asset, while real estate is the least liquid asset.
• Maturity: The time until an asset expires or is redeemed. Maturity can be either short-term or long-term, depending on the duration of the asset. For example, a treasury bill has a maturity of less than a year, while a bond has a maturity of more than a year.

The characteristics of financial assets determine their prices and returns in the financial markets. Generally, there is a trade-off between return and risk, and between return and liquidity. Higher return implies higher risk, and higher return implies lower liquidity. Therefore, investors need to balance their preferences and objectives when choosing financial assets for their portfolios.