Financial Capital. An Overview

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The meaning of capital from the financial point of view, also called financial capital is money that has not been consumed, but saved and transferred to a financial market in order to obtain a profit later.

Financial capital pertains to any liquid medium or mechanism which symbolizes wealth, or other forms of capital. Capital can be gained by acquiring more financial inflows beyond immediate needs and saving the surplus.

The capital invested in financial institutions or other agencies, need not refer to the capital invested in productive activities that generate benefits for the majority of people, that is, do not increase the existing productive capital.

In many cases, major financial capital resources are centralized under the command of relatively small groups as a result of both mergers and takeovers of banks and enterprises of different branches of production, as well as artificial monopolization instances, forming a financial oligarchy .

In some cases, it can be called hot money, appearing on places where there are huge profit, and it is only profitable for those who invest capital in these organizations. Different transnational corporations are intertwined through the financial capital and international capital groups.

The monetary resources of different financial institutions are utilized to encourage and promote economic activities through credit in many different ways. Investment banks mobilize huge resources to the stock market, where money is converted into shares of privatized or private firms.

Thus, the financial capital increasingly determines ownership and more in their direction. A number of countries rely on huge loans to consolidate external and domestic debt.

Some of the common sources of capital include long term options (seven years and above) -share capital, mortgage, venture capital, debenture, etc. Medium term (two to seven years) – term loans, leasing, hire purchase. Short term (under two years), bank overdraft, trade credit, deferred expenses, and factoring among others.

Fixed capital relates to funds used for the acquisition of assets that will stay with the business on a long term basis. And any considerations around the issue of fixed capital needs of a given firm will be typically based on the nature of business, size, stage of development and location, etc.

Working capital involves funds used to purchase stock, cover operational costs and also finance any debt obligations of the company. As with fixed capital, there are various factors that guide working capital, and these include size of business, stage of development, rate of stock turnover ratio, seasonal consumption, profit level, production cycle and nature of business among other things.
 

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