Final answer:
The Future Value of financial instruments can be disclosed in the Balance Sheet. Money listed as an asset on a bank's balance sheet isn't always physically present in the bank. Valuation of loans in the secondary market varies based on the borrower's payment history, changes in economy-wide interest rates, and the borrower's profitability.
Step-by-step explanation:
Understanding the Future Value Disclosure
The Future Value (FV) of financial instruments can be disclosed in the Balance Sheet, as it lists the current value of assets and liabilities, including the FV of financial investments or debts that will mature in the future. It would not typically be shown in the Income Statement or Statement of Cash Flows, as these financial statements present a different set of financial data focusing on income, expenses, and cash movements across a period rather than an outright valuation at a single point in time.
Bank Balance Sheet Assets
On a bank's balance sheet, the money listed under assets may not actually be physically present in the bank because banks operate on a fractional reserve basis. This means they lend out the majority of deposited funds to earn interest, while only a fraction of total deposits is kept as reserves either in the bank's vaults or at the Federal Reserve bank.
Valuing Loans in the Secondary Market
- If a borrower has been late on a number of loan payments, a buyer in the secondary market may pay less for the loan due to increased risk of default.
- If interest rates have risen since the loan was made, a buyer may pay less because the existing loan has a relatively lower interest rate compared to new loans.
- If a borrowing firm has declared a high level of profits, a buyer may be willing to pay more for the loan as the firm's improved financial condition reduces the risk of default.
- If interest rates have fallen, the loan's higher relative interest rate makes it more valuable, and a buyer in the secondary market may pay more for it.