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Homework answers / question archive / Direct finance occurs when A
Direct finance occurs when
A. savers go directly to borrowers for funds.
B. borrowers deposit funds into banks, which then loan these funds to savers.
C. savers deposit funds into banks, which then loan these funds to borrowers.
D. borrowers go directly to savers for funds.
E. bankers get involved with financing.
The correct answer to the given question is D. borrowers go directly to savers for funds.
A direct financing is a process of raising funds by borrowers from net savers or investors without approaching intermediaries such as banks. The direct financing may be carried out by means of issuance of corporate bonds with certain maturity and certain coupon rate. It may also be carried out by means of initial public offering if a firm wants to raise funds in the form of equity from investors.
