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Moskalkova Elizaveta,7 group
Investment Management
HA #1
Problem 1
Real assets have some intrinsic value that allow them to generate productive cash flows as
opposed to financial assets. Examples of real assets include factories, buildings that provide rental
income, machinery, precious metals and others. Financial assets are contractual claims on the
income generated by real assets. Financial assets enable to separate the functions of ownership and
control of real assets in a sense that they need to be managed by a party that may not be the owner
of the real assets. While real assets act as a means of generating income to the economy, financial
assets define the allocation of income or wealth among the investors and act as a trransfer of funds
to the most productive investments. In addition real assets are more resistant to inflation, but are
less liquid than financial assets. Real assets also have higher carrying and storage costs.
Problem 2
Financial engineering refers to the creation of new securities either by breaking up and
allocating the cash flows from one security to create more new securities or by combining several
securities into a composite security. This process allows to spread potential risks and design
securities with custom-tailored risk attributes.
Financial assets all have various characteristics in terms of returns, risks and payment
