Financial Security

A financial security is a tradable Financial Asset.

Economic Agents with excess funds provide capital to agents in need, and in exchange receive a Financial Instrument that represents some form of financial value.

Securities are the traditional way that commercial enterprises raise new capital.

Types

Features range from:

1. Fixed claim on cash flows ⇒ Residual claim on cash flows
2. Higher priority in bankruptcy ⇒ Lower priority in bankruptcy
3. Payments are tax deductible ⇒ Payments are not tax deductible
4. Finite maturity ⇒ infinite life
5. Gives little say over company operations ⇒ gives significant say over company operations

From left to right we represent these in a table

| Debt Securities | Hybrid Securities | ** Equity** |

| ------------------------------------------------ | ------------------------------------------------ | ---------------------------------------- |

| Bank Debt | Convertible Debt | Common Stock |

| Leases | Preferred Stock | Warrants |

| Commercial Paper | | |

| Corporate Bonds | | |