Final answer:
In a non-monetary asset exchange, an asset is valued at fair value, with considerations for specific circumstances of the exchange. Money on a bank balance sheet may not be physically present due to the asset-liability time mismatch inherent in banks' operations. When purchasing loans in the secondary market, price is affected by the borrower's payment history and changes in overall interest rates.
Step-by-step explanation:
An asset is an item of value that a firm or an individual owns. When an asset is acquired through non-monetary exchange, such as through bartering, it is typically valued based on fair value. Fair value represents an estimate of the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date. However, there are exceptions to this rule that depend on the specific circumstances of the exchange.
The money listed under assets on a bank balance sheet may not actually be physically present in the bank due to several reasons. Banks operate on the asset-liability time mismatch, which means customers can withdraw a bank's liabilities in the short term, while the bank's assets, mainly made up of loans and investments, are repaid over the long term. This reflects the concept of fractional-reserve banking where banks are required to hold only a fraction of their deposit liabilities in reserve.
When buying loans in the secondary market, various factors influence whether you might be willing to pay more or less for them. If a borrower has been late on loan payments, the loan is less attractive and would be valued lower due to increased risk. Interest rates play a major role too; if interest rates in the economy as a whole have risen since the bank made the loan, the existing loan may have a lower interest rate than current rates, making it less valuable. If the borrower is a firm declaring high profits, the loan seems more secure and could be valued higher. Conversely, if overall interest rates have fallen since the bank made the loan, the loan has a higher interest rate compared to new loans, making it more valuable.