Which of the following can be described as involving direct finance?
A)A corporation issues new shares of stock.
B)People buy shares in a mutual fund.
C)A pension fund manager buys a short-term corporate security in the secondary market.
D)An insurance company buys shares of common stock in the over-the-counter markets.

Question

Quizplus · Accepted Answer

Direct finance involves the issuance of financial securities by a borrowing firm directly to investors. Option A involves a corporation issuing new shares of stock, which is an example of direct finance as the corporation is getting funds directly from the investors who purchase the shares.

Option B involves indirect finance as people are buying shares in a mutual fund, which then invests in different assets.

Option C also involves indirect finance as the pension fund manager is buying a security in the secondary market, which means the issuing corporation had already obtained funds through direct finance when the security was first issued.

Option D also involves indirect finance as the insurance company is buying shares in the secondary market, which means the funds are not going directly to the issuing corporation.

Which of the Following Can Be Described as Involving Direct