Role of the US Financial System
Dave Kauffman
Managerial Finance I
Jerry Lauer
August 23, 2008
Role of the US Financial System
Introduction
Corporations have to rely on the financial system that is in place in the United States in order to stay in business. The manner that the financial managers use this system can greatly determine the success of the business. This paper will look at how a corporation raises short and long term capital by using this system.
Short Term Capital
Short term capital is usually classified as capital that will only be in place for two years or less. According to (“Business Capital”, 2008) a form of short term capital “factoring is a financial transaction involving the sale of invoices or assets, at a discount to raise immediate capital” (p. 393). This type of action could be seen as a drastic measure and caution should be used in regards to carefully reading the contracts for any type of capital raised this way. This type of non traditional manner of raising capital is gaining in popularity because of the tougher loan requirements that banks are placing on loans today.
Another manner that a company can raise short term capital is a short term note. This is basically a short term loan from a financial institution and the corporation has to repay the face value of the note along with interest. This manner of raising capital is very much like a person getting a loan for buying a car.
Another form of short term capital is called a trade credit. According to Wikipedia (2008) a “Trade credit exists when one firm provides goods or services to a customer with an agreement to bill them l ...