The following statement is from CFA1 text: the financial resources used to buy physical capital are called financial capital. these financial resources come from saving. THe price of capital, which adjusts to make the quantity of capital supplied equal to the quantity demanded, is the interest rate. financial resources come from saving? what saving? and the interest rate of return from what? I did not see any investment made here.
when a firm buys assets (plant, equip, investments, patents, etc) the cash comes from somewhere - savings in the form of cash generated by the firm itself, or from borrowed funds (which comes from the lender’s saings - eg bond-holder’s savings, bank depositor’s savings, etc), or raised from new equity issue (which comes from shareholder’s savings), etc. The price of that capital is the interest rate (determined by supply and demand for the capital) - either the actual interest rate paid or the opportunity cost imputed.
got the first part, but still do not get the interest rate part where is the interest from?
they’re just saying that the interest rate (ie cost of capital to the borrower ie the firm in this case) is set my market forces - the equilibrium level arrived at which supply meets demand. I don’t think they’re getting at anything more complex than that - judging by the context of the quote you pulled out. Economists like to take simple concepts and contort them to death so poor buggers like us think it’s complex!