Level 1 CFA® Exam:
Assets & Markets Classifications

The most common classification of assets distinguishes among:

• securities,
• currencies,
• contracts, and
• commodities.

Securities

Securities are a very broad category, and the most important types of assets that make it up are:

• equities,
• debt instruments, and
• shares in pooled investment vehicles.

Equities are instruments that certify that the holder owns a specified share in the issuing entity. Another way to put it is that equities represent ownership in companies.

A debt instrument is a document certifying that the holder extended a loan to the issuer. In other words, a debt instrument is a promise to repay money that was borrowed. Debt instruments are covered in detail in the Fixed Income Investments topic.

Shares in pooled investment vehicles give their owners shares in investment portfolios managed by professionals.

Currencies

Another type of assets are currencies. What's important to note here is that only national monetary authorities are empowered to issue them. The most commonly traded currencies are the US dollar and the euro.

Contracts

A contract is an agreement under which the buyer undertakes to purchase specified goods in the future and the seller promises to sell them to the buyer. Contracts are also called derivatives.

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Commodities

Like securities, commodities is a very broad category as it includes a wide variety of different goods ranging from precious metals, such as gold or silver to agricultural produce, such as wheat or maize. This category also includes energy products and industrial metals, for example copper.

These different types of assets are traded on different markets.

We distinguish:

• the primary market and secondary market,
• money markets and capital markets,
• spot markets and futures markets,
• traditional investment markets and alternative investment markets.

Primary Market vs Secondary Market

The primary market is where financial instruments are sold by their issuers. The secondary market, in turn, is where transactions are made between entities that are not the issuers of the traded instruments.

Money Markets vs Capital Markets

In money markets, we trade in instruments with maturities of one year or less. Capital markets are for instruments maturing within a period longer than a year. The function of money markets is to provide liquidity for businesses, whereas capital markets is where businesses obtain funding for their investments.

Spot Markets vs Futures Markets

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