Assets

An asset is defined by what it represents, not by what it physically is: any resource an entity owns or controls that produces, or can be converted into, economic value. A building, a patent, a bar of gold, and a bank deposit are all assets by this definition, despite having almost nothing physically in common – what unites them is that each can, in principle, be turned into cash, with varying degrees of friction along the way.

A financial asset narrows the category to resources whose value comes from a contractual claim rather than from a physical good: a bank deposit is a claim on a bank, a bond is a claim on an issuer's future payments, a share is a claim on a company's residual value. Because a contractual claim can usually be transferred, sold, or redeemed with comparatively little friction, financial assets tend to sit toward the liquid end of the spectrum Liquidity describes – though this is a tendency rather than a guarantee, since some financial assets (an illiquid private loan, for instance) can be markedly harder to convert than some tangible ones.