For each transaction, identify the real and/or financial assets that trade hands. Are any financial assets created or destroyed in the transaction?
a. Toyota takes out a bank loan to finance the construction of a new factory.
b. Toyota pays off its loan.
c. Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts.
a. Real asset – Factory, Financial Asset – Liquid such as loan for construction.
b. Financial asset destroyed while real asset continued to exist
c. The cash on hand is a financial asset
Land, buildings usually owned by or leased to companies for carrying out operations are called real assets while the liquid asset such as stock which can be easily converted to cash is called as financial asset.
a. Since ‘real asset’ such as land, building etc. are required by companies for carrying out operations, the constructed factory is the real asset. On the other hand, financial assets are liquid assets which can be easily converted into cash, therefore the loan to finance the construction is the financial asset.
b. On repaying the loan by Toyota, the financial asset is destroyed but the real asset continued to exist.
c. The cash on hand is a financial asset which is used to purchase the real asset i.e. additional inventory of spare auto parts.
You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share.
a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?
b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position?
94% of StudySmarter users get better grades.Sign up for free