capitalCapital that is financial resources is available for a company to borrow to finance operations. Capital costs more when demand is high versus supply and decreases in cost when the reverse is...

capital

Capital that is financial resources is available for a company to borrow to finance operations. Capital costs more when demand is high versus supply and decreases in cost when the reverse is true. The ability of any one firm to borrow all of the financial capital needed is affected by the relative cost, availability and opportunities for growth.

(B) Select three factors from the list below that can affect financial capital cost and availability:

      (1) Monetary policy

      (2) Fiscal policy

      (3) Economic conditions

      (4) Regulations

      (5) Competition for financial capital

      (6) Market structure

How can a company overcome these obstacles?

6 Answers | Add Yours

litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

Economic conditions have a huge effect on a firm or consumer's ability to get capital. Just as it is difficult for consumers to access credit to get capital, it can be difficult for some businesses. This is especially the case for small businesses, who are stuck in both sinking boats. It used to be they could get consumer credit if they could not get business capital. Now they can get neither.
kplhardison's profile pic

Karen P.L. Hardison | College Teacher | eNotes Employee

Posted on

Monetary policy can affect the availability of capital. If the government is pursuing a restrictive monetary policy with high interest rates, then banks will have less money to loan as capital, it will grant fewer loans, and those loans will cost more in terms of interest charged.

enotechris's profile pic

enotechris | College Teacher | (Level 2) Senior Educator

Posted on

The government's fiscal policy, which includes taxation, also factors into the equation. Part of the way businesses get around such restrictions is by unfortunately relocating elsewhere, which causes unemployment and further economic problems.  Should the government reduce or remove corporate taxes, business would thrive -- or at least one component to its restriction on growth would be removed.  Again, it's suppy-demand -- If government imposes taxes, less capital is available for the company to actually do the work of business.

accessteacher's profile pic

accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted on

I would echo the words of #3. Lobbying is now a big business, as companies are able to lobby various government officials therefore creating economic conditions that are far more amenable to their own needs and interests as a business. Capital creation is explicitly linnked to such a process, as governments are able to relax conditions or give incentives in order to help business and the economy thrive.

vangoghfan's profile pic

vangoghfan | College Teacher | (Level 2) Educator Emeritus

Posted on

One way for a company to overcome regulations is to support political candidates who want to restrict regulation. Another way is to hire lobbyists who can try to convince legislators to lighten or alter or (in some cases) abolish regulations. Lobbying has itself become a big business in Washington and in state capitals in part because of the desire of many businesses and other groups to affect the processes of regulation.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Competition for financial capital makes it harder to obtain capital.  If it's harder to borrow, it's harder to buy capital goods for use in expanding, for example.  A tight monetary policy can do the same thing as it makes interest rates go up.  Economic conditions, as we have seen lately, can reduce banks' willingness to lend which, again, reduces a firm's ability to buy capital goods.

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