StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Direct Finance and Indirect Finance - Coursework Example

Cite this document
Summary
The paper "Direct Finance and Indirect Finance" states that generally, in a mature economy, indirect finance is more likely to have a large share of the total financial market. In contrast, direct finance is more likely to have a foothold in a young economy…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.5% of users find it useful
Direct Finance and Indirect Finance
Read Text Preview

Extract of sample "Direct Finance and Indirect Finance"

The contrasting observation exists because indirect finance is more expensive compared to direct finance, as it involves the payment of high-interest rates charged by the FI. Therefore, organizations and companies operating in a young economy might not be in a position to sustain the interest rates charged when accessing indirect finance.
5. What is the relationship between the efficiency of a financial system and the rate of economic growth?

The efficiency of a financial system is directly proportional to the rate of economic growth. An efficient financial system means that there is a robust savings culture, easy access to funds for borrowers, and lower lending risks on the financial intermediaries (FIs) part. As such, the FIs can offer timely, creative, and innovative financial services. The availability of financial services for investors, organizations, and corporations means that there will be an observable growth rate in the economy. However, an inefficient financial system ultimately means that there would be a shortage of financial products and services. A drastic shortage of financial products and services means that organizations will not access enough funds for investments and expansion. Ultimately, the inefficient financial system will negatively affect the rate of economic growth.
7. Describe the major types of risks to financial securities, and give a specific example of each. How do investors measure risk?

Financial securities face two significant risks: unsystematic and systematic. The contrasting difference between the two major types of risks is that systematic risks are beyond the control of organizations while unsystematic risks are within the control mechanisms of organizations. An example of systematic risk is an inflationary risk. This risk has its origins in the fact that inflation erodes purchasing power. On the other hand, an example of unsystematic risks is liquidity risks. This risk emanates from the inability of an organization to access sufficient funds. There are numerous ways investors can use to measure risk (Horcher, 2013). For instance, investors use instruments such as standard deviation, drawdown, and beta ratios. The standard deviation is regarded as a primary risk measurement tool. It is a measurement of how an investment will fluctuate from the mean return.

9. What is liquidity, and why do investors care about it?

Liquidity is the availability of funds that enables investors and organizations to pay their bills and carry out investments with cash or from some assets, which can be turned into cash easily. Investors care about liquidity because it provides a fast and easy channel for obtaining funds or having cash at hand that enables them to respond swiftly to available and rising investment opportunities. In addition, investors who care about liquidity have peace of mind knowing that they can respond to unforeseen circumstances, which occasionally arise in the line of investments. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Answer questions Coursework Example | Topics and Well Written Essays - 500 words - 2, n.d.)
Answer questions Coursework Example | Topics and Well Written Essays - 500 words - 2. https://studentshare.org/macro-microeconomics/1869345-answer-questions
(Answer Questions Coursework Example | Topics and Well Written Essays - 500 Words - 2)
Answer Questions Coursework Example | Topics and Well Written Essays - 500 Words - 2. https://studentshare.org/macro-microeconomics/1869345-answer-questions.
“Answer Questions Coursework Example | Topics and Well Written Essays - 500 Words - 2”. https://studentshare.org/macro-microeconomics/1869345-answer-questions.
  • Cited: 0 times

CHECK THESE SAMPLES OF Direct Finance and Indirect Finance

Business Finance Analysis- Scott Equipment Organization

This essay "Business finance Analysis- Scott Equipment Organization" analyses two major types of risks; diversifiable and non-diversifiable risk.... The essay discusses an investment for the analysis of the two things.... The two things are the return part of a business operation and the risk part of it....
6 Pages (1500 words) Essay

International Corporate Finance and Foreign Direct Investments

The country chosen for the paper "International Corporate finance and Foreign Direct Investments" is South Africa and gold would be the best option when it comes to choosing mining minerals in South Africa.... The Foreign direct Investments policies of the country and a suitable market entry mode have been suggested to direct KM an entry path towards South Africa....
11 Pages (2750 words) Essay

Strategic Corporate Finance

From the paper "Strategic Corporate finance " it is clear that each company has its own capital structure with a unique capital mix.... The capital structure of a company refers to the combination of debt and equity employed by that company to finance the operations of that company.... It refers to the different types of sources of finances used and to what ratio they finance the business (Ehrhardt, 2013).... Most businesses finance their business through debt or equity or a combination of both....
6 Pages (1500 words) Essay

International Financial Markets

In the former concept, the borrowers have access to finance from the lenders directly.... "International Financial Markets" paper analyses the importance of the financial markets and the role which they play in the development of international trade and economic development.... The financial markets comprise the equity market, debt market, derivative market, and foreign exchange market....
10 Pages (2500 words) Essay

The Source of Finance for Motors Parts Direct Limited

The paper 'The Source of finance for Motors Parts Direct Limited' presents Motors Parts Direct Limited (MPD ltd) that operates as an importer and distributor of motor parts in the United Kingdom (UK).... In explaining the source of finance for Motors Parts Direct Limited, it is important to understand its meaning for the business.... There are various sources of finance when a business is looking for a start-up.... The need for a source of finance varies according to the type of business....
14 Pages (3500 words) Essay

Finance Sources of Foreign Direct Investment

In the paper 'finance Sources of Foreign Direct Investment' the author discusses Thunderbolt Plc, which can proceed with the proposal to establish a subsidiary in Utopia.... Market Rate of Return for investment is done using the WACC.... It is also parallel to the target inflation rate of Utopia....
10 Pages (2500 words) Coursework

Long-Term Sources of Finance

The paper 'Long-Term Sources of finance' is a fascinating example of a finance & accounting essay.... This essay is a detailed analysis of a variety of long-term sources of finance along with their advantages and disadvantages.... The paper 'Long-Term Sources of finance' is a fascinating example of a finance & accounting essay.... This essay is a detailed analysis of a variety of long-term sources of finance along with their advantages and disadvantages....
8 Pages (2000 words) Essay

International Financial Markets and Their Economic Importance

This kind of flow of funds from the lenders to the borrowers follows two ways known as Direct Finance and Indirect Finance.... The paper "International Financial Markets and Their Economic Importance" is an exceptional example of an essay on finance and accounting.... The paper "International Financial Markets and Their Economic Importance" is an exceptional example of an essay on finance and accounting.... They lend such surplus funds to the borrowers like households, businesses, governments who want to finance their personal expenditures like the purchase of houses, cars, and furniture....
10 Pages (2500 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us