Final answer:
Revaluing financial assets held for trading, such as shares, is updating their value to reflect current market rates. It's a critical process that affects an investor's financial equity and can result in profit during market upturns or losses during downturns, highlighting the influence of revaluation in financial markets and their cycles.
Step-by-step explanation:
Revaluing financial assets held for trading, such as shares in a company like Spark, involves updating the book value of these assets to reflect their current market value. This process is crucial because it provides a realistic picture of an investor's financial situation. For instance, if an investor uses leverage or margin to buy more stock than the cash at hand, such as using 500 shares of General Electric worth $100 each to secure a loan for purchasing additional shares, the revaluation of these stocks would be essential to determine the actual equity of the investor.
During positive market trends, revaluation can lead to increased value of the assets. However, in downturns, as was the case in 2007 and 2008, revalued assets might show a decrease in value, which can have serious financial implications. The revaluation process is indeed a double-edged sword; it provides opportunities for growth when markets rise but also poses a risk if the investor's positions decline in value, potentially leading to a situation where the assets are worth less than the liabilities.
Understanding the concept of revaluation is important to grasp financial markets and the reasons behind the boom and bust cycles that financial assets undergo. It helps investors and businesses make informed decisions based on the most current values of their investments.