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Financial Claims In A Modern Economy

Financial claims are essentially an IOU. What this means is that when a business or household borrows the purchasing power of another that other as a financial claim on the person who received the purchasing power. As economies evolved purchasing power to the form of currency. Therefore currency is the subject of inflation, deflation and the associated interest payments through the act of lending.          

Financial claims are essentially an IOU. What this means is that when a business or household borrows the purchasing power of another that other as a financial claim on the person who received the purchasing power. As economies evolved purchasing power to the form of currency. Therefore currency is the subject of inflation, deflation and the associated interest payments through the act of lending.
The ability to resell financial claims allows the lender to purchase financial claims with maturities that do not exactly match with their investment timelines. If for example a spender purchases a financial claim with maturities longer than the planned investment. And the claim can be resold to a neither spender at the appropriate time. Likewise such an investor can purchase a financial claim with maturity shorter than the time arising for which he has set for his investment strategy. The ease at which these financial claims can be resold is called marketability.
This was the heart of the derivatives market. The fact that a sum of money lent as principal was receiving interest payments that alone was considered an asset to which a further lending of money could be produced. That is the interest payments of a sum of loans was fractionalized much like the terms set in the best forex trading portfolios. Such a scenario is very fragile indeed because it was the illusion of an asset and not an asset in itself. Hence if the original borrower of a loan of which a derivative is composed defaults than the entire market falls like a house of cards. The further down the chain of investors on this derivatives bubble the less return on their dollar they are likely to see.
Financial claims therefore should only be staked on the principle that was lent. A financial claim on interest payments of liabilities is complete folly just like investing in the first forex trading tips that come your way. Such investing environment is hostile to those who depend on corrupt money managers to safeguard their nest eggs.

Article Tags: Financial Claims, Purchasing Power, Financial Claim, Interest Payments

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ABOUT THE AUTHOR


Rhab Hendrik is an author who shares his best forex trading articles with others. He can always be counted on to bring you the latest forex trading tips and detailed forex trading strategies.



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