Definition of paper asset depends of area that it is related:
- Business assets means assets that cannot be easily change into cash, which also means they are not easy to use or sell as well. These kind of assets cause low liquidity and have only paper value,
- Investments assets means assets that are representing something, they define its ovnership. These might be currency, bond, stock, money market account, bank deposits, other types of investments. There have to be a working banking system in the background so that these assets can be easily exchanged. On the other hand, their value depends on economic situation - when the financial system collapses, value of assets is decreasing.
- Fiat currencies assets are all of them are paper assets, for example U.S. dollar or Swiss Franc. U.S. dollars do not have any longer coverage in running gold standards, they are used governments and currency users. The Swiss Franc has however back up in electonic currency, due to Swiss law.
Paper assets versus hard assets
Paper assets (also called financial assets) and hard assets (also called real assets) are the opposite terms. Hard assets have actual value in the nature of themselves. When financial system collapses, these assets have much better value than papper assets. Real assets value influences the value of financial assets. Hard assets would be: building, machine, gold, silver, oil, diamonds, land, platinum or other psysical holdings.
To show the diffence on an example: not everybody can own the car factory (the real asset) but many people can hold shares of it (financial asset) and get some income from the production. Moreover, Dash A. P. explained six differences between them:
- Paper asset does not determine wealth of the society or economy, hard assets are.
- Paper assets does not influence production capacity directly, they support it indirectly due to transfers of money, hard assets are influence capacity directly.
- Paper assets allocate the income among investors, while real assets are producing goods or services.
- Paper assets are included in the both sides of the balance sheet, while real assets only in the asset part.
- Hard assets are destroyed by accident or over time, paper assets are destroyed once business is finished.
- Investing in paper assets is less risky than investing in real assets.
Examples of Paper asset
- Financial Markets: A paper asset is a security that is held in physical form, such as a physical stock certificate, bond certificate, or futures contract, rather than being held electronically. An example of a paper asset would be a physical stock certificate that is issued by a company to a shareholder in a company, who then has the right to own that stock.
- Real Estate: A paper asset is a legal document that provides evidence of ownership or a right to ownership of a piece of real estate. An example of a paper asset would be a deed to a property, which is typically written on a deed of trust and signed by both the buyer and the seller of the property.
- Cryptocurrency: A paper asset is a digital asset that is recorded on a distributed ledger, such as a blockchain. An example of a paper asset would be a digital currency, such as Bitcoin, which is stored on the blockchain and can be sent from one user to another.
Advantages of Paper asset
A paper asset is an investment instrument that is represented by a physical document, such as a certificate or bond. Here are some of the advantages of paper assets:
- Paper assets are tangible investments that can be stored and easily tracked. This makes them particularly useful for investors who wish to have physical proof of their investments.
- Paper assets are typically easy to liquidate, meaning they can be easily converted to cash. This makes them a great option for investors who may need to access their funds quickly.
- Paper assets are generally low risk investments, as they are backed by a government or other entity. This means that the investor can be assured of a certain level of security.
- Paper assets often generate a steady stream of income, making them attractive to investors who want to generate a steady income from their investments.
Limitations of Paper asset
A paper asset is a form of financial asset that is represented physically on paper, usually in the form of a certificate. These assets can include stocks, bonds, deeds, contracts, and other documents. However, there are certain limitations associated with paper assets that should be noted. These include:
- Limited liquidity - Due to the physical nature of paper assets, they are not as liquid as digital or electronic assets and can be difficult to convert into cash.
- Costly to transfer - Transferring paper assets can be a costly and time-consuming process as it often involves fees, paperwork, and signature requirements.
- Risk of loss or damage - Paper assets are vulnerable to loss or damage due to theft, fire, or other natural disasters.
- Difficult to track ownership - It can be difficult to track ownership due to the manual nature of paper asset transfer.
- Subject to forgery - Paper assets are vulnerable to forgery and counterfeiting.
A paper asset is an asset that is represented by a physical document or record. Generally, paper assets are used to store, exchange, and track the ownership of financial and non-financial assets. Examples of paper assets include stocks, bonds, certificates of deposits, deeds, promissory notes, and more.
Other approaches related to paper assets include:
- Physical assets such as gold, silver, and other precious metals, as well as commodities such as crude oil and agricultural products.
- Intangible assets such as copyrights, patents, and trademarks.
- Intellectual property such as music, literature, and software.
- Real estate, including land and buildings.
In summary, paper assets are a form of asset that is represented by a physical document or record, and can include a variety of other assets such as physical assets, intangible assets, intellectual property, and real estate.
- Herold T. (2014), p.205
- Herold T. (2014), p.205
- Dash A. P. (2013), p.49
- Dash A. P. (2013), p.50
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Author: Dominika Zaich