Question

What are exchange settlement accounts? Which institutions hold then and where are they held?

What is the main difference between a real asset and a financial asset? (1 mark)

True or false: a financial asset is also a financial liability? Explain your answer.

BHP has issued both shares and bonds. What is the main difference between shares and bonds? Which is the more risky for an investor, and why is it more risky? Why might investors wish to hold more risky assets?

True or false: a $100 note is an asset of the Reserve Bank of Australia? Explain your answer.

Answer 1

Exchange Settlement Accounts are the means by which providers of payments services settle obligations that have accrued in the clearing process for both the parties. ESAs are held by RBA or Reserve Bank of Australia.

Real Assets are those assets which can be touched or material. E.g. land, commodity, property etc. and financial assets includes shares, bonds , preferred stocks etc. or any other derivative instrument and they are intangible in nature.

False: Financial Asset e.g. Equity is an asset to you, then it is the liability of those who issued the equity but not owner's liability.

Equity share holders are the owners of the company but the debt holders are the creditors of the company. Equity is more risky for an investor as in case of liquidation debt holders get the first right and last if any remaining asset is there, then it goes to equity share holder. However, in case of profit, debt holder gets only the interest as return but equity shareholders are the owners of the company and so they can get every penny of profit after deduction of interest, tax and preferred equity. Hence, as the chances of getting higher return is more investor may choose to hold equity but not debt.

False: $100 note is the asset of USA not RBA.