Question

Explain the nature of individual and business decisions which drive the demand and supply of financial capital. specifically, what kinds of factors will shift demand and supply of financial capital?

Answer 1

Those who provide financial capital must make two major choices: how much money to set aside and how to allocate it among various financial investments.

What kinds of factors will shift the demand and supply of financial capital?

People must consider their future needs to determine how much savings they should set aside for anticipated or unforeseen circumstances. Savings will move their money to Investment B if Investment A becomes riskier or offers a lower return, which will cause the supply curve of financial capital for Investment A to move back to the left while moving Investment B's supply curve to the right. Those that ask for financial resources do so because they intend to repay it in the future. People might, for instance, take out a loan to buy a house, a car, or another type of long-term possession. To create a factory or finance a project that won't pay off for five, ten, or even more years of research and development, a corporation may look for financial investment.

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