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Homework answers / question archive / Which of these financial intermediaries is most likely to invest in new companies that are just starting up and have no track record? A) Hedge funds B) Venture capital funds C) Asset management companies D) Private equity funds
Which of these financial intermediaries is most likely to invest in new companies that are just starting up and have no track record?
A) Hedge funds
B) Venture capital funds
C) Asset management companies
D) Private equity funds
Many startups, that find it difficult to get a credit or loan from banks and other financial institutions because they do not have a credit report, opt to use venture capital. Venture capital is a type of financing in which investors can invest their capital in startup companies that have high long term growth potential. Venture capitalists invest their capital in exchange for the company's shares. This type of investment might be risky for venture capitalists but also it might bring very high profits. Therefore, the correct answer is option B).
In contrast, hedge funds are a type of investment fund that helps investors to trade assets to earn higher profits. Asset management companies help to design an investment portfolio (stock and bonds) on behalf of their clients. Private equity funds are a type of investment vehicle that purchases shares of private companies that are listed in the stock.