and equity is named leverage. It has to be optimized as a high leverage can bring a higher profit but create solvency risk. Borrowed capital is capital that the business borrows from institutions or people, and includes debentures: Redeemable debentures Irredeemable debentures Debentures to bearer Ordinary debentures bonds deposits loans Own capital is capital that owners of a business (shareholders and partners, for example) provide: Preference shares/hybrid source of finance Ordinary preference shares Cumulative preference shares Participating preference shares Ordinary shares Bonus shares Founders' shares These have preference over the equity shares. This means the payments made to the shareholders are first paid to the preference shareholder(s) and then to the equity shareholders. Instruments A contract regarding any combination of capital assets is called a financial instrument, and may serve as a medium of exchange, standard of deferred payment, unit of account, or store of value. Most indigenous forms of money (wampum, shells, tally sticks and such) and the modern fiat money are only a "symbolic" storage of value and not a real storage of value like commodity money. Valuation Normally, a financial instrument is priced accordingly to the perception by capital market players of its expected return and risk. Unit of account functions may come into question if valuations of complex financial instruments vary drastically based on timing. The "book value", "mark-to-market" and "mark-to-future" conventions are three different approaches to reconciling financial capital value units of account. Issuing and trading Like money, financial instruments may be "backed" by state military fiat, credit (i.e. social capital held by banks and their depositors), or commodity resources. Governments generally closely control the supply of it and usually require some "reserve" be held by institutions granting credit. Trading between various national currency instruments is conducted on a money market. Such trading reveals differences in probability of debt collection or store of value function of that currency, as assigned by traders. When in forms other than money, financial capital may be traded on bond markets or reinsurance markets with varying degrees of trust in the social capital (not just credits) of bond-issuers, insurers, and others who issue and trade in financial instruments. When payment is deferred on any such instrument, typically an interest rate is higher than the standard interest rates paid by banks, or charged by the central bank on its money. Often such instruments are called fixed-income instruments if they have reliable