Define direct finance and indirect finance

Direct finance is a financing method whereby an individual or institution borrows funds directly from the financial markets, with no help from third-party financial institutions. Additionally, only one financial instrument is involved in this financing and is between the borrower and the lender.

Indirect finance involves the borrowing of funds indirectly from the financial markets through a third-party intermediary, such as a bank. It involves two instruments; one between the financial intermediaries and the borrower, and another between the financial intermediaries and the lenders.

Money is classified into;

• Fiat money: This is the type of money whose value is determined by government order.
• Commodity money: Its value is derived from the commodity it is made from.
• Fiduciary money: It operates on the level of trust that its issuer commands.