Understanding Money and Financial Capital

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Questions and Answers

What is the main difference between money and financial capital?

Financial capital is a long term store of value while money is a short term store of value.

Why is trust an important component of the value of financial capital?

Trust is important for financial capital because high levels of well-founded confidence are essential in the economy.

Define Capitalism.

Capitalism is a relatively free market system based on the concept that the owners of capital are entitled to a reward for putting their capital at risk.

What are the resources used in production according to classical economics?

The resources used in production are land, labour, capital, and enterprise. Signup and view all the answers

What is the wider range of meanings of the term 'Capital' depending on the context?

Capital could mean money put into a business, knowledge, skills, transport, infrastructure, and relationships. Signup and view all the answers

What is a free market economy?

An economy where resources are allocated by the market through the market mechanism. Signup and view all the answers

Define nationalization.

The transfer of businesses from private ownership to public ownership. Signup and view all the answers

Explain the principle of mandatory capital maintenance.

It ensures that companies do not pay out share capital to shareholders for the protection of creditors. Signup and view all the answers

What are stakeholders in an organization?

People who have a legitimate interest in the organization's activities. Signup and view all the answers

What is a bond?

A formal debt investment issued by a borrowing organization and bought by a lender. Signup and view all the answers

Define default in the context of debt investments.

It is the failure of the borrower to make repayments when due. Signup and view all the answers

Explain the concept of covenants in debt investments.

Covenants are part of the documentation that protects the investor and provide additional rights. Signup and view all the answers

What is the role of credit ratings?

To assess the creditworthiness of an organization. Signup and view all the answers

Why are shareholders of limited liability companies protected from losses?

Shareholders have no liability beyond the amount of capital they agreed to invest. Signup and view all the answers

Differentiate between public sector and private sector in an economy.

Public sector comprises the government and governmental organizations, while the private sector consists of organizations established to make a profit. Signup and view all the answers