Financial capital: Facts, Discussion Forum, and Encyclopedia Article

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Financial capital

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	Financial capital can refer to money used by entrepreneur Entrepreneur An entrepreneur is a person who has possession of an organization, or venture, and assumes significant accountability for the inherent risks and the outcome.... s and business Business A business is a legally recognized organization designed to provide good s and/or Service to consumers. Businesses are predominant in capitalism economies, most being privately owned and formed to earn profit that will increase the wealth of its owners.... es to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, ect. Financial capital vs. real capital Financial capital refers to the funds provided by lenders (and investors) to businesses to purchase real capital equipment for producing goods/services. Real capital comprises physical goods that assist in the production of other goods and services, eg. shovels for gravediggers, sewing machines for tailors, or machinery and tooling for factories. Financial capital is provided by lenders for a price: interest Interest Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money , or, money earned by deposited funds .Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft finance, and even entire factories in finance lease arrangements.... . Also see time value of money Time value of money The concepts of present and future value hinge upon the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal.... for a more detailed description of how financial capital may be analyzed. Furthermore, financial capital, or economic capital, is any liquid medium or mechanism that represents wealth Wealth Wealth is an abundance of valuable material possessions or resources. The word is derived from the old English wela, which is from an Indo-European word stem.... , or other styles of capital Capital (economics) In economics, capital or capital goods or real capital refers to factors of production used to create goods or services that are not themselves significantly consumed in the production process.... . It is, however, usually purchasing power in the form of money available for the production or purchasing of goods, etcetera. Capital can also be obtained by producing more than what is immediately required and saving the surplus. Sources of capital Long Term - usually above 7 years Share Capital Share capital Share capital or issued capital or capital stock refers to the portion of a company's Shareholders' equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value.... Mortgage Mortgage A mortgage is the transfer of an interest in property to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt.... Retained Profit Venture Capital Venture capital Venture capital is a type of private equity capital typically provided to early-stage, high-potential, Growth investing companies in the interest of generating a return through an eventual realization event such as an IPO or mergers and acquisitions of the company.... Debenture Debenture A debenture is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a Fixed income and the principal amount whenever the debenture matures.... Project Finance Project finance Project finance is the finance of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and Stock are used to finance the project, rather than the balance sheets of project sponsors.... Medium Term - usually between 2 and 7 years Term Loans Leasing Leasing Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductable payments.... Hire Purchase Hire purchase Hire purchase is the legal term for a contract developed in the United Kingdom, and now found in India, Australia, New Zealand, Republic of Ireland and other state which have adopted the English law concept.... Short Term - usually under 2 years Bank Overdraft Overdraft An overdraft occurs when withdrawals from a bank account exceed the available balance which gives the account a negative balance - a person can be said to be "overdrawn".... Trade Credit Trade credit Trade credit exists when one firm provides good or Service to a customer with an agreement to bill them later, or receive a shipment or service from a supplier under an agreement to pay them later.... Deferred Expenses Deferral Deferred, in Accounting methods#Accrual basis, is any account where the asset or liability is not realized until a future date , e.g. Annuity , fee, taxes, income, etc.... Factoring Factoring Factoring can refer to the following:* A form of commercial finance - see factoring ; structured settlement factoring transaction* Factorization, a mathematical concept... Capital market Long-term funds are bought and sold: Shares Debentures Long-term loans, often with a mortgage bond as security Reserve funds Euro Bonds Money market Financial institutions can use short-term savings to lend out in the form of short-term loans: Credit on open account Bank overdraft Short-term loans Bills of exchange Factoring of debtors Differences between shares and debentures Shareholders are effectively owners; debenture-holders are creditors. Shareholders may vote at AGMs and be elected as directors; debenture-holders may not vote at AGMs or be elected as directors. Shareholders receive profit in the form of dividends; debenture-holders receive a fixed rate of interest. If there is no profit, the shareholder does not receive a dividend; interest is paid to debenture-holders regardless of whether or not a profit has been made. In case of dissolution of firms debenture holders are paid first as compared to shareholder. Fixed capital This is money which is used to purchase assets that will remain permanently in the business and help it to make a profit. Factors determining fixed capital requirements Nature of business Size of business Stage of development Capital invested by the owners location of that area Working capital This is money which is used to buy stock, pay expenses and finance credit. Factors determining working capital requirements Size of business Stage of development Time of production Rate of stock turnover ratio Buying and selling terms Seasonal consumption Seasonal production Seasonal cost Instruments A contract Contract A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act which is enforceable in a court of law. It is a binding legal agreement.... regarding any combination of capital asset Capital asset The term capital asset has three unrelated technical definitions, and is also used in a variety of non-technical ways.In Financial economics, it refers to any Asset used to make money, as opposed to Asset used for personal enjoyment or consumption.... s is called a financial instrument, and may serve as a medium of exchange Medium of exchange A medium of exchange* is an intermediary used in trade to avoid the inconveniences of a pure barter system.By contrast, as William Stanley Jevons argued, in a barter system there must be a coincidence of wants before two people can trade ? one must want exactly what the other has to offer, when and where it is offered, so that the exchange... , standard of deferred payment Standard of deferred payment A standard of deferred payment is the accepted way, in a given market, to settle a debt. For example, while the gold standard reigned, gold or any currency convertible to gold at a fixed rate constituted such a standard.... , unit of account Unit of account A unit of account is a standard monetary unit of measurement of the market value/cost of goods, services, or assets. It is one of three well-known functions of money.... , or store of value Store of value To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved.... Most indigeneous forms of money (wampum, shells, tally sticks and such) and the modern fiat money is only a "symbolic" storage of value and not a real storage of value like commodity money. Capital vs. money Liquidity requirements of these vary significantly — leading to a diversity of contract Contract A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act which is enforceable in a court of law. It is a binding legal agreement.... s and financial markets to trade them on. When all four functions are served by one instrument, this is called money Money Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value.... , which does not need to be traded on financial markets since the risk of loss of value of money is uniform across the whole society. Where no one form of money is agreed to have reliable value, and barter is undesirable, less liquid or more diverse instruments have served the four functions. This article focuses mostly on financial instruments which are not uniformly affected by native currency inflation Inflation In economics, inflation is a rise in the general price level of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the money supply ; however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflatio... and which are not guaranteed by a state. Own and borrowed capital Capital contributed by the owner or entrepreneur of a business, and obtained, for example, by means of savings or inheritance, is known as own capital or equity Equity Equity is the name given to the set of law principles, in jurisdictions following the English law common law tradition, which supplement strict rules of law where their application would operate harshly, so as to achieve what is sometimes referred to as "natural justice".... , whereas that which is granted by another person or institution is called borrowed capital, and this must usually be paid back with interest. The ratio between debt and equity is named leverage. It has to be optimized as a high leverage can bring a higher profit but create solvency Solvency In finance, or business solvency is the ability of an entity to pay its debts with available cash. Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth.... risk. Borrowed capital This is capital which the business borrows from institutions or people, and includes debentures: Redeemable debentures Irredeemable debentures Debentures to bearer Ordinary debenture Debenture A debenture is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a Fixed income and the principal amount whenever the debenture matures.... s Own capital This is capital that owners of a business (shareholders and partners, for example) provide: Preference shares/hybrid source of finance Ordinary preference shares Cumulative preference shares Participating preference share Ordinary shares Bonus shares Founders' shares They have preference over the equity shares.Means the Payment made to the shareholders is done by firstly paying to preference shareholder and then to the equity shareholders. Issuing and trading Like money, financial instruments may be "backed" by state military fiat Military fiat Military fiat is a process whereby a decision is made and enforced by military means without the participation of other political elements. The Latin term fiat, translated as "let it be," suggests the autocracy attitude ascribed to such a process.... , credit Credit (finance) Credit is the provision of resources by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources at a later date.... (i.e. social capital Social capital Social capital is a concept developed in sociology and also used in business, capital , organizational behaviour, political science, public health and natural resources management that refers to connections within and between social networks as well as connections among individuals.... held by banks and their depositors), or commodity Commodity A commodity is anything for which there is demand, but which is supplied without qualitative product differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk.... resources. Governments generally closely control the supply of it and usually require some "reserve" be held by institutions granting credit. Trading between various national currency Currency A currency is a Medium of exchange, facilitating the trade of goods and/or Service s. It is coins and paper bills used as money. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value.... instruments is conducted on a money market Money market In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term market liquidity funding for the global financial system.... . Such trading reveals differences in probability of debt collection or store of value Store of value To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved.... function of that currency, as assigned by traders. When in forms other than money, financial capital may be traded on bond market Bond market The bond market is a financial market where participants buy and sell debt security , usually in the form of bond . As of 2006, the size of the international bond market is an estimated $45 trillion, of which the size of the outstanding U.S.... s or reinsurance markets Reinsurance Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Individuals and corporations obtain insurance policies to provide protection for various risks .... with varying degrees of trust in the social capital Social capital Social capital is a concept developed in sociology and also used in business, capital , organizational behaviour, political science, public health and natural resources management that refers to connections within and between social networks as well as connections among individuals.... (not just credits) of bond-issuers, insurers, and others who issue and trade in financial instruments. When payment is deferred on any such instrument, typically an interest rate is higher than the standard interest rates paid by banks, or charged by the central bank on its money. Often such instruments are called fixed-income instruments if they have reliable payment schedules associated with the uniform rate of interest. A variable-rate instrument, such as many consumer mortgages Mortgage loan A mortgage loan is a loan secured by real property through the use of a note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which security interest the loan.... , will reflect the standard rate for deferred payment set by the central bank prime rate, increasing it by some fixed percentage. Other instruments, such as citizen entitlements, e.g. "U.S. Social Security", or other pensions, may be indexed to the rate of inflation, to provide a reliable value stream. Trading in stock markets or commodity markets Commodity markets Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.... is actually trade in underlying assets which are not wholly financial in themselves, although they often move up and down in value in direct response to the trading in more purely financial derivatives Financial instruments Financial instruments are cash, evidence of an ownership interest in an entity, or a contractual right to receive, or deliver, cash or another financial instrument.... . Typically commodity markets depend on politics that affect international trade, e.g. boycotts and embargoes, or factors that influence natural capital Natural capital Natural capital is the extension of the economic notion of capital to environmental goods and services. Natural capital is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future.... , e.g. weather that affects food crops. Meanwhile, stock markets are more influenced by trust in corporate leaders, i.e. individual capital Individual capital Individual capital , also known as human capital, comprises inalienable or personal traits of persons, tied to their bodies and available only through their own free will, such as skill, creativity, Entrepreneur, courage, capacity for moral example, non-communicable wisdom, invention or empathy, non-transferable personal trust and lead... , by consumers, i.e. social capital Social capital Social capital is a concept developed in sociology and also used in business, capital , organizational behaviour, political science, public health and natural resources management that refers to connections within and between social networks as well as connections among individuals.... or "brand capital" (in some analyses), and internal organizational efficiency, i.e. instructional capital Instructional capital Instructional capital is a term used in educational administration after the 1960s, to reflect capital resulting from investment in producing learning materials.... and infrastructural capital Infrastructural capital Infrastructural capital refers to any physical means of production or means of protection beyond that which can be gathered or found directly in nature, i.e.... . Some enterprises issue instruments to specifically track one limited division or brand. "Financial future Financial future A financial future is a futures contract on a short term interest rate . Contracts vary, but are often defined on an interest rate index such as 3-month sterling or US dollar LIBOR.... s", "Short selling Short selling In finance, short selling or "shorting" is the practice of selling a financial instrument that the seller does not own at the time of the sale.... " and "financial option Option (finance) In finance, an option is a contract between a buyer and a seller that gives the buyer the right?but not the obligation?to buy or to sell a particular asset at a later time at an agreed price.... s" apply to these markets, and are typically pure financial bets on outcomes, rather than being a direct representation of any underlying asset. Broadening the notion The relationship between financial capital, money Money Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value.... , and all other styles of capital Capital (economics) In economics, capital or capital goods or real capital refers to factors of production used to create goods or services that are not themselves significantly consumed in the production process.... , especially human capital Human capital Human capital refers to the stock of skills and knowledge embodied in the ability to perform Labour so as to produce economic value. It is the skills and knowledge gained by a worker through education and experience.Many early economic theories refer to it simply as labor, one of three factors of production, and consider it to be a fungible... or labor, is assumed in central bank Central bank A central bank, reserve bank, or monetary authority is the entity responsible for the monetary policy of a country or of a group of member states.... policy and regulations regarding instruments as above. Such relationships and policies are characterized by a political economy Political economy Political economy originally was the term for studying production, buying and selling, and their relations with law, custom, and government. Political economy originated in moral philosophy.... - feudalist, socialist, capitalist Capitalism Capitalism is an economic system in which wealth, and the means of producing wealth, are private property and controlled rather than commonly, publicly, or state-owned and controlled.... , green Green Green is a color, the perception of which is evoked by light having a spectrum dominated by energy with a wavelength of roughly 520?570-Nanometre.... , anarchist or otherwise. In effect, the means of money supply Money supply In economics, money supply, or money stock, is the total amount of money available in an economy at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits.... and other regulations on financial capital represent the economic sense of the value system of the society itself, as they determine the allocation of labor in that society. So, for instance, rules for increasing or reducing the money supply based on perceived inflation, or on measuring well-being, reflect some such values Theory of value (economics) "Theory of value" is a generic term which encompasses all the theories within economics that attempt to explain the exchange value or price of goods and Service .... , reflect the importance of using (all forms of) financial capital as a stable store of value. If this is very important, inflation control is key - any amount of money inflation reduces the value of financial capital with respect to all other types. If, however, the medium of exchange function is more critical, new money may be more freely issued regardless of impact on either inflation or well-being. It is common in Marxist theory and ideology to refer to role of "Finance Capital" as the determining and ruling class interest in capitalist society, particularly in the latter stages. Valuation Normally, a financial instrument is priced accordingly to the perception by capital market players of its expected return and risk. Unit of account functions may come into question if valuations of complex financial instruments vary drastically based on timing. The "book value Book value In accountancy, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or impairment costs made against the asset.... ", "mark-to-market" and "mark-to-future" conventions are three different approaches to reconciling financial capital value units of account. Economic role Socialism Socialism Socialism refers to a broad set of economic theories of social organization advocating public or state ownership and administration of the means of production and distribution of goods, and a society characterized by equality for all individuals, with a fair or Egalitarianism method of compensation.... , capitalism Capitalism Capitalism is an economic system in which wealth, and the means of producing wealth, are private property and controlled rather than commonly, publicly, or state-owned and controlled.... , feudalism Feudalism Feudalism, a term first used in the early modern period , in its most classic sense refers to a Middle Ages European political system composed of a set of reciprocal law and military obligations among the warrior nobility, revolving around the three key concepts of lords, vassals, and fiefs.... , anarchism Anarchism Anarchism is a political philosophy encompassing anarchist schools of thought which consider the state to be unnecessary, harmful, and/or undesirable.... , other civic theories Civics Civics is the study of citizenship and government with particular attention given to the role of citizens? as opposed to external factors? in the operation and oversight of government.... take markedly different views of the role of financial capital in social life, and propose various political restrictions to deal with that. Finance capitalism is the production of profit from the manipulation of financial capital. It is held in contrast to industrial capitalism, where profit is made from the manufacture of goods. See also banking capital Capital (economics) In economics, capital or capital goods or real capital refers to factors of production used to create goods or services that are not themselves significantly consumed in the production process.... capital market Capital market The capital market is the market for security , where Corporation and governments can raise longterm funds. It is a market in which money is lent for periods longer than a year.... Capitalism Capitalism Capitalism is an economic system in which wealth, and the means of producing wealth, are private property and controlled rather than commonly, publicly, or state-owned and controlled.... finance Finance The field of finance refers to the concepts of time, money and risk and how they are interrelated. Banks are the main facilitators of funding through the provision of credit, although private equity, mutual funds, hedge funds, and other organizations have become important.... Five Capitals Five Capitals The Five Capitals Model of sustainable development was developed by the organization Forum for the Future. The model groups together:* Natural capital... funding Funding Funding or finance is to provide Capital , which means money for a project, a person, a business or any other private or public institutions.... money supply Money supply In economics, money supply, or money stock, is the total amount of money available in an economy at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits.... list of finance topics List of finance topics Topics in finance include:... list of accounting topics List of accounting topics This page is a list of accounting topics.AAccounting Ethics- Accounting for risk- Accounting information system- Accounting methods... spiritual capital Spiritual capital Spiritual capital is the newest concept among the four basic forms of capital that are material capital , intellectual capital, social capital and spiritual capital....