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

taking out a loan at a commercial bank

Direct Financing

Indirect Financing
investing in a mutual fund

Direct Financing

Indirect Financing
investing in a friend's new business

Direct Financing

Indirect Financing
selling stock on the stock market

Direct Financing

Indirect Financing

1 answer

Here’s the classification for each financing scenario:

  1. Taking out a loan at a commercial bank
    Answer: Indirect Financing
    Explanation: In this case, the bank acts as an intermediary between the borrower and the lenders (depositors).

  2. Investing in a mutual fund
    Answer: Indirect Financing
    Explanation: The mutual fund gathers money from multiple investors and invests it in a portfolio of stocks, bonds, or other securities, acting as an intermediary.

  3. Investing in a friend's new business
    Answer: Direct Financing
    Explanation: This involves directly providing funds to the business without intermediaries.

  4. Selling stock on the stock market
    Answer: Direct Financing
    Explanation: This involves directly trading ownership stakes in companies, connecting investors directly with the companies.

So, summarizing:

  1. Taking out a loan at a commercial bank - Indirect Financing
  2. Investing in a mutual fund - Indirect Financing
  3. Investing in a friend's new business - Direct Financing
  4. Selling stock on the stock market - Direct Financing