Lecture 3 - Factors of Production Capital We will begin our...

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Factors of Production: Capital We will begin our discussion of the economic environment of business by examining how firms and government raise the capital (money) necessary to operate Reference: Lab Manual p7-25 “Overview of the Canadian Financial System” reading This is commonly referred to as the Capital Formation Process
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The Capital Formation Process
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Internal vs. External Financing Two ways in which corporations and governments can obtain capital Internal Financing Corporations: Reinvest profits (retained earnings) Governments: Tax Revenues External Financing When internal sources of capital are insufficient…go to the Capital Markets
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External Financing: The Canadian Capital Markets Capital Markets: Definition Places where people or institutions with money to invest (lender/savers) are brought together with those who require capital (borrower/spenders) Capital markets may be actual places Ex. The Toronto Stock Exchange (TSX) Capital markets may also be virtual markets with no real physical location Ex. The Bond Market, The Money Market
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