A pleasant evening to one and all. For today, I wrote about something related to finances. It was based on the notes given to us before, and I have written what I have understood in it. By the way, it will also be helpful for some students having accounting or financial-related subjects in college.
Illustration via Wikimedia Commons
There are many ways where capital is transferred between savers and borrowers. First is the direct transfer of money and securities, primarily used by small firms, and similarly, small capital is raised by transferring directly. The business passes its securities to savers, who may give the money needed by the firm successively. An example would be when the bonds and stocks are straightly sold to the investors. The second is through an investment bank (iBank).
The investment bank serves as a go-between or something that act as a medium. The firm sells the stocks to the so-called iBank. From there, it will sell those securities to the investors. The third one is transfers made through a financial intermediary, which may include a bank, insurance company, and the like. Intermediaries actually make new forms of capital and hugely raise money and capital markets' efficiency. The money is utilized to buy and hold the securities of the firms, while the savers hold the securities of the intermediary.
You may have noticed that there are lots of terms used in business. Don't worry because I have given my best to explain them well while trying to keep it not so formal at the same time.
Efficient capital markets are also crucial for economic growth. Financial markets play the essential function of an efficient allocation of capital. Capital moves efficiently from those with surplus capital to those who need it. Savers will earn an interest rate on their savings, while borrowers want to borrow money from the market at an interest rate. Those with surplus funds assume to make a return on their investments.
At the same time, those who need capital realize that they must pay interest to those who provide it. As companies keep on growing, they can borrow funds from banks and other institutions, and as they grow, they provide work or jobs to many people. Thus, it drives business activity and, consequently, faster economic growth.
Image credits to TBNG
Now, we will differentiate physical asset markets from financial asset markets. Physical asset markets are tangible, meaning they can be touched since they have a real or solid presence. It may include the products such as real estate, machinery, vehicles, and other tangible resources, which may be subject to depreciation.
Physical assets that depreciate typically experience a decrease in their value due to constant use, which may cause wear and tear of the assets. Under this market, the assets may also require maintenance, repairs, or upgrades. On the other hand, Financial asset markets are not tangible, meaning they do not have a physical presence. These markets deal with bonds, stocks, intangible assets such as goodwill, copyrights, patents, and the like. These markets do not incur expenses such as maintenance and the like, unlike physical asset markets.
That is all for today, guys. I hope you have learned something today from this article I have published. May God bless us all. Mabuhay!
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Special Notes:
All Other Images used in this article (without watermark) are Copyright Free Images from Pixabay and Unsplash.
This is original, not fake.
I think we discussed this in senior high school, Entrepreneurship subject but I kinda forgot about it. Thanks for this article. It's a refresher.