Final answer:
Non-financial assets and liabilities are priced based on the market value, which is estimated by what others are willing to pay for them. The primary loan market is where loans are originated, and the secondary loan market is where they are traded.
Step-by-step explanation:
Non-financial assets and liabilities are priced based upon the concept of market value. This principle dictates that the value of something, such as a loan or any other asset, is determined by estimating what another party in the market is willing to pay for it. Banks often issue home loans and subsequently may sell these loans to other financial institutions that collect the loan payments. The place where financial institutions make loans to borrowers is known as the primary loan market, while the market in which these loans are bought and sold by financial institutions is referred to as the secondary loan market.
The balance sheet of a bank illustrates its financial position by listing all assets, including loans, and liabilities. A mortgage loan is viewed as an asset by the bank, as the borrower has a legal commitment to repay the loan over time. However, the true value today of these future payments can be challenging to determine. This is mainly addressed by assessing the loan's current market value in the secondary loan market, which provides a channel for transferring these assets and gaining liquidity.