Final answer:
HTM securities are recorded as non-current assets on a balance sheet if their maturity extends beyond one year. Money on a bank balance sheet represents not only physical cash but also loans issued, owing to the fractional reserve banking system. In the secondary loan market, a loan's value fluctuates based on the borrower's credit history, market interest rates, and the financial health of the borrower.
Step-by-step explanation:
Recording of HTM Securities as Non-current Assets
HTM (Held-to-Maturity) securities are recorded as non-current assets on a balance sheet when they have maturity dates beyond the next twelve months from the balance sheet date. As non-current assets, these securities represent investments that a company intends to hold until they mature and are not meant for trading or selling in the short term for a quick profit. The accounting treatment reflects the company's intention of long-term investment rather than short-term gain.
Understanding Assets on a Bank Balance Sheet
The money listed under assets on a bank's balance sheet may not actually be in the bank because banks operate on the principle of fractional reserve banking. This means that banks lend out the majority of the money deposited with them, keeping only a fraction of deposits as reserves. Assets on a bank's balance sheet will include loans due to be paid back to the bank, which are not physical cash held at the bank but are instead expected future cash inflows.
Secondary Market for Loans
When buying loans on the secondary market, an investor or financial services company would consider several factors impacting the valuation of a loan: