Economics: Types of Capital Savings
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Questions and Answers

What is an example of direct capital savings in use?

  • A couple investing their savings in a home (correct)
  • Investing in stocks or bonds
  • Depositing savings in a financial institution
  • Purchasing a mutual fund
  • What is a characteristic of capital?

  • It is mobile, sensitive to its environment and scarce (correct)
  • It is not affected by government policies
  • It is only used for domestic investments
  • It is abundant and freely available
  • What is country risk evaluation used for?

  • To analyze the growth of the nation's money supply
  • To evaluate the performance of investment firms
  • To guide the decision on where capital will flow (correct)
  • To predict economic trends
  • What is an example of indirect capital savings?

    <p>Purchasing stocks or bonds</p> Signup and view all the answers

    What is analyzed as part of country risk evaluation?

    <p>The political environment, economic trends, fiscal policy, and monetary policy</p> Signup and view all the answers

    What is fiscal policy concerned with?

    <p>The level of taxes and government spending</p> Signup and view all the answers

    What is the goal of monetary policy?

    <p>To promote price and foreign exchange stability</p> Signup and view all the answers

    Why is capital extremely selective?

    <p>Because it is mobile, sensitive to its environment and scarce</p> Signup and view all the answers

    What is the primary source of investment capital in Canada?

    <p>Institutional investors and foreign investors</p> Signup and view all the answers

    What type of investors typically trade large volumes of securities?

    <p>Institutional investors</p> Signup and view all the answers

    What is the primary use of capital by individuals?

    <p>Financing housing, consumer durables, or other types of consumption</p> Signup and view all the answers

    What industries have historically received significant foreign direct investment in Canada?

    <p>Manufacturing, petroleum and natural gas, and mining and smelting</p> Signup and view all the answers

    What is a characteristic of retail investors?

    <p>They are individual investors who buy and sell securities for their own personal accounts</p> Signup and view all the answers

    What are the three main categories of users of capital?

    <p>Individuals, businesses, and governments</p> Signup and view all the answers

    What is a characteristic of institutional investors?

    <p>They are organizations that trade large volumes of securities and typically have a steady flow of money to invest</p> Signup and view all the answers

    What is the significance of foreign investors in Canada?

    <p>They are a significant source of investment capital and have historically contributed to Canada's growth</p> Signup and view all the answers

    What is the primary reason capital moves in or out of countries or localities?

    <p>Anticipation of changes in taxation, exchange policy, and regulations</p> Signup and view all the answers

    What is the primary source of capital?

    <p>Savings</p> Signup and view all the answers

    Why do corporations retain earnings in their businesses?

    <p>For internal use by the corporation</p> Signup and view all the answers

    What is the characteristic of labor that affects investment opportunities?

    <p>Productivity</p> Signup and view all the answers

    Why do governments operate at a surplus?

    <p>To invest their surpluses</p> Signup and view all the answers

    What is the primary motivation for individuals to save?

    <p>To consume in the future</p> Signup and view all the answers

    What is the primary factor that influences capital allocation?

    <p>Return on investment</p> Signup and view all the answers

    Why do non-residents invest in Canada?

    <p>Because Canada is a good place to invest</p> Signup and view all the answers

    Study Notes

    Capital Savings

    • Can be used directly by individuals, governments, or companies to invest in tangible assets like homes, highways, or plants
    • Can also be invested indirectly through purchasing securities like stocks, bonds, or mutual funds
    • Indirect investment allows savers to buy securities issued by governments and corporations, which in turn use the funds for direct investment

    Characteristics of Capital

    • Mobile: can move freely between countries and locations
    • Sensitive to its environment: affected by factors like government stability, economic activity, and investment opportunities
    • Scarce: in high demand worldwide, making it selective in where it is invested

    Country Risk Evaluation

    • Analyzes factors that affect capital flow, including:
      • Political environment: risk of internal or external conflict
      • Economic trends: growth, inflation, and economic activity
      • Fiscal policy: tax levels, government spending, and savings incentives
      • Monetary policy: management of money supply and price stability
      • Investment opportunities: risk and return on investment
      • Labour force: skill and productivity levels

    Sources of Capital

    • Only source of capital is savings
    • Savers include:
      • Non-financial corporations: generate savings through earnings, mainly for internal use
      • Individuals: may save and invest for future consumption
      • Governments: surplus funds can be invested, while deficits require borrowing
      • Non-residents: foreign corporations and individuals investing in Canada

    Users of Capital

    • Individuals: use capital to finance consumption, housing, and consumer durables
    • Businesses: use capital for direct investment, expansion, and growth
    • Governments: use capital for infrastructure development, public services, and investments

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    Description

    Learn about the different ways capital savings can be used, including direct and indirect investments in various sectors.

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