Suppose you borrow $500 from your bank to pay for a guitar. This is an example of

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Borrowing money from a bank is an example of indirect financing because the bank is an intermediary between the borrower and the lender. The bank borrows money from the lender and then lends it to the borrower, charging interest for its services. Direct financing would involve the borrower receiving funding directly from the lender without the use of an intermediary. Moral hazard refers to the risk that a borrower may take on too much risk because they know the lender will bear most of the losses, and transaction costs refer to the fees and expenses associated with financial transactions.

Suppose You Borrow $500 from Your Bank to Pay for a Guitar