Which of the following is an example of direct finance?

Question

A. An individual applies for a mortgage through a mortgage bank. B. An individual deposits funds into a savings account at his credit union. C. A municipality sells municipal bonds to investors. D. A small business opens a line of credit from a commercial bank.

Answer 1

C. A municipality sells municipal bonds to investors.

Direct finance occurs when borrowers obtain funds directly from the financial markets without going through an intermediary, such as a bank. In this option, the municipality sells bonds directly to investors, which is a clear example of direct finance. The other options involve intermediaries (like banks or credit unions) in the financing process.