4.1 Financial Assets

• What are financial assets broadly classified into?

  Debt and equity
• What are the three categories of financial assets mentioned?

  Debt, equity, derivatives
• What is the seniority of debt assets compared to equity?

  Seniority over equity
• Debt assets provide fixed returns
• Financial assets enable investors to manage risk through hedging
• What are the characteristics of debt assets in terms of risk and returns?

  Lower risk, fixed returns
• Equity assets offer fixed returns to investors.

  False
• Derivatives are highly leveraged investments based on underlying assets
• Market fluctuations and economic conditions are risks associated with capital appreciation.
• What are the two main categories of financial assets?

  Debt and equity
• Debt assets offer fixed returns and seniority over equity
• Match the financial asset category with its characteristic:

  Debt ↔️ Fixed returns

  Equity ↔️ Higher risk

  Derivatives ↔️ Leveraged investments
• Diversification is a risk associated with investing in financial assets.

  False
• Debt assets, such as bonds, provide a fixed return
• Match the financial asset with its characteristic:

  Equity ↔️ Variable returns

  Debt ↔️ Fixed returns
• Equity assets offer higher risk but also higher potential reward compared to debt.


  True
• Match the key role of financial assets with its description:

  Capital Allocation ↔️ Directing funds to businesses

  Risk Management ↔️ Hedging against uncertainty

  Investment Facilitation ↔️ Connecting savers with borrowers

  Liquidity ↔️ Providing easy buying and selling
• Liquid and efficient financial asset markets are vital for overall economic health.

  True
• Derivatives are highly leveraged investments used for hedging or speculation.

  True
• Derivatives are leveraged investments used for hedging or speculation
• What role do financial assets play in the economy?

  Promoting economic growth
• What is the primary function of capital allocation in the financial system?

  Directing funds efficiently
• Match the asset type with its characteristic:

  Debt ↔️ Fixed, predictable returns

  Equity ↔️ Variable returns, higher risk

  Derivatives ↔️ Leveraged investments, hedging
• Equity represents ownership interest in a company.


  True
• Order the roles of financial assets in the economy:

  1️⃣ Capital Allocation

  2️⃣ Investment Facilitation

  3️⃣ Risk Management

  4️⃣ Liquidity Provision
• Financial assets contribute to economic growth through capital allocation
• Order the steps in how financial assets influence market equilibrium:

  1️⃣ Supply and Demand Interaction

  2️⃣ Price and Quantity Adjustment

  3️⃣ Equilibrium Achievement
• An increase in the supply of stocks leads to a decrease in the equilibrium stock price.


  True
• Equity assets represent ownership interest in a company and have variable returns.

  True
• Debt assets have seniority over equity
• Why do investors need to understand the characteristics of debt and equity?

  To align with goals
• How does capital allocation by financial assets enhance the economy?

  Enhances growth and productivity
• Order the categories of financial assets based on their risk level (highest to lowest):

  1️⃣ Equity

  2️⃣ Derivatives

  3️⃣ Debt
• What type of assets are loans and mortgages categorized under?

  Debt
• What is a key characteristic of debt assets?

  Fixed, predictable returns
• Diversification reduces overall portfolio risk.

  True
• Liquidity provision ensures market efficiency and investor confidence.
• Derivatives are often used for hedging against risk or speculation.
• Derivatives are often used for hedging or speculation
• What is one role of financial assets in the economy related to ensuring assets can be easily bought and sold?

  Liquidity provision