Financial Capital

Financial capital is the money or capital that is used by the businesses for their services or productions. Financial capital of a business can also be termed as the financial assets such as bank accounts, currency, stock and bonds. The financial capital is used by the businesses to store wealth and purchase other assets. The financial capital may also be referred to as the capital that is needed to acquire real capital.

The concept of financial capital actually refers to the funds that are provided by the lenders to the businesses in order to purchase equipments for goods or services. The real capital of a business refers to the shovels and machinery required for a business.

Financial capital is also referred to as the economic capital. The financial capital may also be termed as the purchasing power of a business. Another concept of capital says that it can also be received by producing more than the immediate requirement and then saving the surplus.

The financial capital may be owned or borrowed. The owner or entrepreneur of the business may contribute to business and such a capital is called own capital. There are financial institutes and lenders that lend out capital to the businesses for some interest.

An agreement with the combination of various capital assets is called a financial instrument. The financial instrument may serve as a medium of exchange, unit of account, standard of deferred payment or store of value to the businesses. The businesses may release financial instruments to the capital markets and raise funds from those. The financial instruments are those contracts that are having monetary values such as stocks, bonds, currencies and commodities. Generally the financial instruments are priced according to the capital market perception depending on its expected risk and return.

The governments generally closely regulate the supply of financial instruments and require some sort of “reserve” to be held by the institutions for the grant of credit. Money market is the place where the trading between the currency instruments of various countries is conducted.

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Last Updated on : 1st July 2013

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