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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.
Borrowed capital[edit]
This is capital which the business borrows from institutions or people, and includes debentures:
Redeemable debentures
Irredeemable debentures
Debentures to bearer
Ordinary debentures
bonds
deposits
loans
Own capital[edit]
This is capital that owners of a business (shareholders and partners, for example) provide:
Ordinary shares
Bonus shares
Founders' shares
These have preference over the equity shares. This means the payments made to the shareholders
are first paid to the preference shareholder(s) and then to the equity shareholders.
supply 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, 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.
Marxian perspectives[edit]
It is common in Marxian theory to refer to the role of "Finance Capital" as the determining and ruling
class interest in capitalist society, particularly in the latter stages.[6][7]
Valuation[edit]
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", "mark-to-market" and "mark-to-future"[8] conventions
are three different approaches to reconciling financial capital value units of account.
Economic role[edit]
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.
See also[edit]
Book: Finance
Wikimedia Commons has
media related to Wealth.
Banking
Capital market
Financialization
Funding
Money supply
Notes[edit]
1.
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