Issuing and trading

Like money, financial instruments may be "backed" by state military fiat, credit (i.e. social capital held by banks and their depositors), or commodity 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 instruments is conducted on a money market. Such trading reveals differences in probability of debt collection or store of value function of that currency, as assigned by traders. When in forms other than money, financial capital may be traded on bond markets or reinsurance markets with varying degrees of trust in the social capital (not just credits) of bond-issuers, insurers, and others who issue and trade in financial instruments. When payment is deferred...

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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, 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 risk. [edit] Borrowed capitalThis is capital which the business borrows from institutions or people, and includes debentures: Redeemable debentures Irredeemable debentures Debentures to bearer Ordinary debentures [edit] Own capitalThis is capital that owners of a business (shareholders and partners, for example) provide: Preference shares/hybrid source...

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Sources of capital

Long term - usually above 7 years Share Capital Mortgage loan Retained Profit Venture Capital Debenture Project Finance Medium term - usually between 2 and 7 years Term Loans Leasing Hire Purchase Short term - usually under 2 years Bank Overdraft Trade Credit Deferred Expenses Factoring Capital marketLong-term funds are bought and sold: Shares Debentures Long-term loans, often with a mortgage bond as security Reserve funds Euro Bonds Money marketFinancial 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 debtor...

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Financial capital vs. real capital

Financial capital or just capital in finance and accounting, refers to the funds provided by lenders (and investors) to businesses to purchase real capital equipment for producing goods/services. Real Capital or Economic Capital comprises physical goods that assist in the production of other goods and services, e.g. shovels for gravediggers, sewing machines for tailors, or machinery and tooling for factories. Financial capital generally refers to saved-up financial wealth, especially that used to start or maintain a business. A financial concept of capital is adopted by most entities in preparing their financial reports. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Under a physical...

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