Bea Arellano

FINALS – Finance

I. Explain the different types of Financial Markets

1. Physical Assets vs. Financial Assets

Assets are commonly known as anything with a value that represent economic resources or
ownership that can be converted into something of value such as cash. Financial assets and
physical assets, both represent such ownerships of value, even though they are very different to
each other based on their features and characteristics. Since many easily confuse the two types of
assets to be of similar meaning, the following article provides a solid explanation of the
difference between the two, and explore a few points that may help readers understand the
difference between these two types of assets. The main difference between the two is that
physical assets are tangible and financial assets are not. Physical assets usually depreciate or lose
value due to wear and tear, whereas financial assets do not experience such reduction in value
due to depreciation. However, financial assets may lose value to changes in market interest rates,
fall in investment returns or fall in the stock market prices. Physical assets also require
maintenance, upgrades and repairs, whereas financial assets do not incur such expenses.

2. Money vs. Capital

From the investor point of view, “the primary difference is the  money market is short
term, very safe, and very liquid,” says Adams. Comparing the  money market and
the capital market point by point can help you understand why the money market can be
the preferred choice for a short-term investment need and how it differs from a  capital
market investment like buying stocks.

3. Primary vs. Secondary

The term capital market refers to any part of the financial system that raises capital from bonds,
shares, and other investments. New stocks and bonds are created and sold to investors in
the primary capital market, while investors trade securities on the secondary capital market.

4. Spot vs. Future

The spot market or cash market is a public financial market in which financial instruments or
commodities are traded for immediate delivery. It contrasts with a futures market, in which
delivery is due at a later date.

5. Public vs. Private

The private and public markets both make up the larger financial landscape, however there are
big differences in the types of companies and investors that participate in each. Private
companies exist in the private markets and are funded through institutional investors, whereas
public companies are publicly traded on the stock market and can be invested in by the general
public.

II. Differentiate the three forms of Business Organization (Sole vs. Partnership vs.
Corporation)
Sole Proprietorship - is the simplest and most common structure chosen to start a business. It is
an unincorporated business owned and run by one individual with no distinction between the
business and the owner. You are entitled to all profits and are responsible for all your business’s
debts, losses and liabilities.

Partnership – are the simplest structure for two or more people to own a business together. There are
two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).
Limited partnerships have only one general partner with unlimited liability, and all other partners have
limited liability. The partners with limited liability also tend to have limited control over the company,
which is documented in a partnership agreement. Profits are passed through to personal tax returns, and
the general partner — the partner without limited liability — must also pay self-employment taxes.

Corporation - sometimes called a C corp, is a legal entity that's separate from its owners.
Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the
strongest protection to its owners from personal liability, but the cost to form a corporation is higher
than other structures. Corporations also require more extensive record-keeping, operational processes,
and reporting.