Suppose you borrow $1,000 from your bank to pay for a bike. This is an example of

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Borrowing money from a bank is an example of indirect financing, as the bank acts as an intermediary between the saver and the borrower. The bank takes funds from savers and lends them to borrowers, charging interest on the loan. Direct financing would be when the borrower obtains the funds directly from the saver, such as through bonds or stocks. Moral hazard and transaction costs are not relevant to this scenario.

Suppose You Borrow $1,000 from Your Bank to Pay for a Bike