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Definitions
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Dictionary > Definitions > Economy > Financial capital
Financial capital
Definition
Financial capital is money used by entrepreneurs and businesses to buy what they need to make their products or provide their services.
Description
Financial capital refers to the funds provided by lenders (and investors) to
businesses to purchase real capital like equipment for producing goods/services.
Real capital may include shovels for gravediggers, sewing machines for tailors,
or machinery for manufacturing firms. Financial capital is provided by lenders
for a price: interest. Also see time value of money 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, or other styles of capital. 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.
Liquidity requirements of these vary significantly � leading to a diversity of
contracts and financial markets to trade them on. When all four functions are
served by one instrument, this is called money, 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 and which are not
guaranteed by a state.
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,
whereas that which is granted by another person or institution is called
borrowed capital, and this must usually be paid back with interest.
Socialism, capitalism, feudalism, anarchism, other civic theories 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.
Author
Aziz
Author Email
azizjipsbd@yahoo.com
References
Definitions to be consulted