Financial Management |Management Notes
Table of Contents
Indirect Finance: Finance is the study of how money is managed and the actual process of acquiring needed funds.Both channel funds from saver-lenders to who borrows money. Direct Finance takes place between an ultimate lender and an ultimate borrower, with no intermediary involved in it.
It takes place between lenders and borrowers with financial intermediaries involved ie; one between lenders and financial intermediaries, and another between financial intermediaries and borrowers. Financial intermediaries are the financial institutions through which savers can indirectly provide funds to borrowers. An agent who buys and sells securities from inventory is called a dealer. Direct Finance is riskier as compared to it.
It is a method of financing where borrowers borrow funds from the financial market through indirect means, such as through a financial intermediary. It is different from direct financing where there is a direct connection to the financial markets as indicated by the borrower issuing securities directly on the market. It is more important to borrowers than direct finance.
Investment banks are the type of financial institutions other than commercial banks that helps to raise funds for various companies including insurance companies by issuing IPO(Initial Public Offering)of stocks or bonds, mutual funds. There are also other finance companies that are not-for-profit organizations like credit unions which is run and controlled by its members. For making the capital market function efficiently, asset transformation is done.
Direct Vs Indirect Finance
|1.||Direct finance is a method of financing where borrowers borrow funds directly from the financial market without using a third-party service, such as a financial intermediary.||Indirect finance is a method of financing where borrowers borrow funds from the financial market through indirect means, such as through a financial intermediary.|
|2.||Direct Finance is different from indirect financing where a financial intermediary takes the money from the lender with an interest rate and lends it to a borrower with a higher interest rate||It is different from direct financing where there is a direct connection to the financial markets as indicated by the borrower issuing securities directly on the market.|
|3.||Direct finance is less important to borrowers as compared to indirect finance.||It is more important to borrowers than direct finance.|
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