Final answer:
The purpose of a note exchanged for assets or services is to record a liability on the balance sheet. In banking, assets such as loans may not be physically present as banks lend out a portion of deposits. The value of loans in the secondary market fluctuates with the borrower's payment history and overall economic interest rates.
Step-by-step explanation:
The purpose of a note exchanged for an asset or service is primarily to record a liability. When a business acquires an asset or service and issues a promissory note in exchange, it essentially creates a formal obligation to pay the supplier or lender in the future. This note will outline the repayment terms, including the interest rate and maturity date, and is recorded on the business's balance sheet as a liability until the debt is paid off.
Furthermore, exploring the role of banks can elaborate on the financial intermediation aspect. When looking at a bank's balance sheet, the money listed under assets might not actually be physically present in the bank because banks use a portion of deposited funds to issue loans and invest in various securities. This is a fundamental concept known as fractional reserve banking, where banks keep only a fraction of deposits as reserves and use the rest for lending purposes. In the secondary loan market, the value of a loan might vary based on several factors. If a borrower has been late on loan payments, the perceived risk is higher, and a potential buyer may pay less for the loan. Conversely, if the borrower's financial position improves, as indicated by high profits, the loan's value may increase due to the lower risk of default. Interest rate fluctuations can also influence the value of loans. If rates have risen since the loan was issued, the loan may be less attractive and thus cheaper. If rates have fallen, however, existing loans with higher rates become more valuable.