Determine whether each of the following is direct financing or indirect financing.(2 points)

Question

selling stock on the stock market

Direct Financing

Indirect Financing
taking out a loan at a commercial bank

Direct Financing

Indirect Financing
investing in a friend's new business

Direct Financing

Indirect Financing
investing in a mutual fund

Direct Financing

Indirect Financing

Answer 1

Here are the classifications for each scenario:

1. Selling stock on the stock market

   • Direct Financing
     (You are directly raising capital from investors in exchange for ownership in the company.)

2. Taking out a loan at a commercial bank

   • Indirect Financing
     (You are borrowing money from a financial institution, which provides the funds indirectly from its depositors.)

3. Investing in a friend's new business

   • Direct Financing
     (You are providing funds directly to your friend in exchange for equity or a share in their business.)

4. Investing in a mutual fund

   • Indirect Financing
     (You are pooling your money with other investors, and the mutual fund company then invests that money in various securities on your behalf, making it indirect financing.)