Money and Capital Definitions

Question 1

Financial capital

Answer 1

long term financial resources, held in the form of financial assets including bonds and shares

Question 2

Capital

Answer 2

anything that confers value or benefit to its owners (including financial capital)

Question 3

Examples of capital

Answer 3

capital goods such as transport infrastructure, and human capital including knowledge, skills and relationships

Question 4

Factors of production

Answer 4

resources which are used in production, classically being land, labor, capital and enterprise

Question 5

Capitalism

Answer 5

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

Question 6

Free market

Answer 6

an economy - or part of an economy - where resources are allocated by the market by means of the market mechanism

Question 7

Market mechanism

Answer 7

the interaction of demand and supply, resulting in an equilibrium quantity and price being set by the market

Question 8

Market mechanism - when demand exceeds supply?

Answer 8

market prices are likely to rise

Question 9

Market mechanism - when supply exceeds demand?

Answer 9

market prices are likely to fall

Question 10

Market mechanism - when demand and supply are equal?

Answer 10

market prices are likely to remain stable

Question 11

Regulation

Answer 11

the official control of markets (or of other activities) usually by a system of rules, often including primary or secondary legislation

Question 12

Mixed economy

Answer 12

an economy where resources are allocated by both the government and the market mechanism

Question 13

Private sector

Answer 13

the part of the economy which is not owned or controlled by the government, and consists of organizations established to make a profit

Question 14

Public sector

Answer 14

the part of the economy comprising the government, and other governmental organizations

Question 15

Third sector

Answer 15

the part of the economy comprising non-governmental non-profit-making organizations - the other two sectors being the government (public sector) and business (private sector)

Question 16

Nationalisation

Answer 16

the transfer of a business from private ownership to national public ownership

Question 17

Privatisation - classical

Answer 17

transfer of a business or an activity from state ownership and control into ownership by the private sector

Question 18

Privatisation - corporate privatisation

Answer 18

corporate privatisation, which is a transfer of ownership from public equity markets (the stock exchange) to private equity ownership

Question 19

Share capital

Answer 19

money invested by the owners of the company (shareholders) - for the protection of creditors of the company, the company is not normally allowed to pay out the share capital to to the shareholders

Question 20

Stakeholders

Answer 20

all the people who have a legitimate interest in an organization’s activities, including shareholders but also covering a much wider group of interest holders - one important group of stakeholders are lenders (also known as debt investors)

Question 21

Loan

Answer 21

a borrowing (liability) for the borrower, and an investment (asset) for the lender

Question 22

Bond

Answer 22

a formal debt investment, usually tradable, issued by a borrowing organization and bought by a lender (= debt investor)

Question 23

Documentation

Answer 23

the formal written contract for the debt investment

Question 24

Default

Answer 24

part of the documentation of a bond or other debt investment (such as a bank loan) that protects the investor (lender)

Question 25

Covenants

Answer 25

another part of borrowing and lending documentation that protects the lender-investor

Question 26

Breach of a covenant

Answer 26

by a borrower is normally an event of default that gives additional rights to the lender-investor, for example acceleration

Question 27

Event of default

Answer 27

the event of breaching a loan agreement or other similar agreement - normally expressly permits the lender to accelerate repayment of the amount outstanding on the loan and to cancel any further lending (lender is not obliged to accelerate repayment)

Question 28

Acceleration

Answer 28

a requirement for the immediate repayment of the whole of a loan by a borrower - regardless of the scheduled repayment terms - following an event of default

Question 29

Credit ratings

Answer 29

an assessment of creditworthiness, made by a separate organization from the one issuing bonds (or other securities)

Question 30

Credit rating agencies

Answer 30

specialist bodies that evaluate creditworthiness and publish credit ratings, for example Moody’s and Standard & Poor’s (S&P)

Question 31

Corporate social responsibilities (CSR)

Answer 31

the acceptance by commercial organisations that they have wider ranging and longer term responsibilities, beyond the short and medium term financial interests of financial stakeholders

Question 32

Sustainability

Answer 32

considers the long term environmental and other effects of an organisation’s activities, seeking to ensure that they do not degrade the physical environment or other necessary conditions for well being

Question 33

Fiduciary duty

Answer 33

a legal duty to act solely in another party’s interest - a fiduciary is a person that occupies a position of trust in relation to someone else and is is required to act for the latter’s benefit within the scope of that relationship (ex: trustees and company directors)

Question 34

Stewardship

Answer 34

the fundamental fiduciary duty of company directors, to safeguard and administer the property belonging to a company, on behalf of its shareholders