Some assets are physical items. Your house. A diamond ring. Your collection of Hummel dolls. These are tangible assets...they exist as physical items that can be sold for cash.
Other assets are more theoretical. They include things like stocks and bonds, or the money you have squirreled away in a bank account. These items represent financial assets. Financial assets are assets in the sense that can sell them, but they don't have the same physical reality as more tangible assets.
You can have physical proof of a financial asset (stock certificates or paperwork from the bank), but the real value comes from the contractual obligations. The stock grants you part ownership in a company. A bond entitles you to receive certain interest payments. Those contractual details provide you value.
Meanwhile, that stock certificate is just paper. It only has value because of what the paper represents.
But those Hummels...how can you look at them and miss their inherent physical value?
Related or Semi-related Video
Finance: What is an Asset Backed Securit...7 Views
Finance Allah Shmoop what is an asset backed security Well
if you haven't seen our M night channel on directed
video on Collateral you should It won the Academy Award
for best finance video frequently confused with a Tom Cruise
action flick Riveting stuff So why would you see this
or other videos while other than to see Cem truly
groundbreaking CG effects like this Because assets backing a security
our collateral that is the asset itself is the guarantee
that bond holders get if the money isn't paid back
or said differently The bonds borrowed against the assets function
as the collateral in the loan funding whatever a B
s security is being offered You have an airplane or
actually one hundred of them together they're worth two billion
box bonds were issued to buy them two billion bucks
worth of bonds BBB The planes are going to be
incorporated into SHMOOP West Airlines flight schedule Only problem Shmoop
West doesn't have the collateral or the cash Ola to
just you know by them But shmoop West Air can
lease them or pay interest on them for the privilege
of using them And that's a good thing because well
eBay airlines just happens to own a bunch of used
airplanes So what happens then Well the owner of the
airplanes pledges them as collateral and raises cash ola money
in the form of bonds by borrowing against the assets
of the airplane The asset of the airplane is the
guarantee that backs the bond Should something up you know
go awry So uh yeah On behalf of everyone here
it's shmoop West Air We'd like to wish you a
safe ish flight Peanuts
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