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. 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. Like money, financial instruments may be "backed" by state military fiat , credit i. 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.
Capital (economics) - Wikipedia
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 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 , 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.
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 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.
Typically commodity markets depend on politics that affect international trade, e. Meanwhile, stock markets are more influenced by trust in corporate leaders, i. Some enterprises issue instruments to specifically track one limited division or brand. The relationship between financial capital, money , and all other styles of capital , especially human capital or labor , is assumed in central bank policy and regulations regarding instruments as above.
Such relationships and policies are characterized by a political economy - feudalist , socialist , capitalist , green , anarchist or otherwise. In effect, the means of money 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. Is rising inequality necessarily bad? Convergence on macro scale. Education as a force of convergence.
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Critically looking at data on ROC and economic growth over millenia. Simple model to understand r and g relationship. It's probably worth having a conversation about what capital is. If you're going to produce anything, you need some input, you need some factors for that production. You'd put them together. Let's say that you are a farm. Your output is food. What are your inputs going to be? This is a farm right over here. Let me a draw a little circle here.
Farm and your output is food. You're going to need some land. You're going to need some water. You're going to need some equipment. And you are going to need some seeds and animals so, I'll just put generally here, supplies. And of course, you're going to need people to put all these things together and essentially work the land, to plow the soil and plant the seeds and harvest the crops and manage the whole operations.
You're going to need labor as well. You take all of these factors of production together. They essentially represent a farm that is going to output food. When people talk about capital as a factor of production, sometimes they talk about it in a fairly narrow way. They'll separate things like land and resources or something separate and they'll say capital is hey, that's your equipment and your supplies. When people talk in more general terms, especially, in the focus of this book when there are people talking about labor versus capital.
People can only demand consumer goods if they have first produced something which they can offer in exchange for the products that they demand.
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