Question

The distinguish feature of economic capital (as opposed to financial capital, like money) is that it is

Answer 1

Well, economic capital is the estimated amount or value of money needed to cover possible losses or bankruptcy from unexpected risk. A firm's economic capital number can also be seen as a measurement of solvency.

Step-by-step explanation:

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Answer 2

Economic capital is the amount of money used by a firm to protect itself from risk, consequences and losses incurred from unexpected risk. It is a

measure of solvency status of a firm.

Explanation:

Economic capital is considered as a provision for a firm to safeguard itself from risks arising from business, legal changes, economic reasons and market fluctuations. The operational and market risks of a firm is determined by economic capital. The expected risk is often converted into capital and this gives a clear picture about a firm’s solvency.

Financial capital is often expressed in monetary terms. The two components of financial capital are debt and equity. A financial status of a firm is determined by the debt to equity ratio.