A movie production house makes a gross profit of $10 million from a movie release.If the company spends $4 million, including taxes and all expenses, then it has $6 million in profits.The company can invest the $6 million in the bonds of a company.Making such an investment is riskier than keeping the $6 million in a savings account.The financial officer hopes that over the long term, the investment will yield greater returns than cash holdings or interest on a savings account.This is an example of a form of:

Question

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The investment in bonds is an example of direct finance because the movie production house is directly investing its profits into financial instruments (bonds) without going through intermediaries like banks. Direct finance involves the direct transfer of funds from savers to borrowers.

A Movie Production House Makes a Gross Profit of $10