Which of the following is an example of direct finance? (1 point)
A company sells its stocks to investors.
A small business opens a line of credit from a commercial bank
CO An individual deposits funds into a savings account at his credit union.
O An individual applies for a mortgage through a mortgage bank
A company sells its stocks to investors.
The example of direct finance is A) A company sells its stocks to investors.
To determine which of the options is an example of direct finance, we need to understand what direct finance means. Direct finance refers to the process of obtaining funds directly from the financial markets without intermediaries. In this case, the individual or entity is directly engaging with the financial markets to access funds.
Let's analyze each of the options to see which one aligns with the definition of direct finance:
1. A company sells its stocks to investors: This is an example of direct finance because the company is directly raising funds from investors by issuing and selling stocks in the financial market.
2. A small business opens a line of credit from a commercial bank: This is not an example of direct finance because the small business is obtaining funds through an intermediary, the commercial bank. The bank acts as an intermediary by providing credit to the business.
3. An individual deposits funds into a savings account at his credit union: This is not an example of direct finance because the individual is depositing funds into a savings account, which is a form of indirect finance. The credit union acts as an intermediary by accepting deposits and providing financial services.
4. An individual applies for a mortgage through a mortgage bank: This is not an example of direct finance because the individual is applying for a mortgage through a mortgage bank, which acts as an intermediary by providing loans for purchasing real estate.
Based on the analysis, the correct answer would be: A company sells its stocks to investors.