Which of the following is an example of direct finance?
a.) An individual applies for a mortgage through a mortgage bank.
b.) An individual deposits funds into a savings account at his credit union.
c.) A municipality sells municipal bonds to investors.
d.) A small business opens a line of credit form a commercial bank.
c.) A municipality sells municipal bonds to investors.
c.) A municipality sells municipal bonds 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 financial transactions that involve parties directly borrowing or lending funds from each other without the involvement of intermediaries like banks or financial institutions.
Let's analyze the options:
a.) An individual applies for a mortgage through a mortgage bank. - This option involves an intermediary, the mortgage bank, making it an example of indirect finance rather than direct finance.
b.) An individual deposits funds into a savings account at his credit union. - This option also involves an intermediary, the credit union, making it an example of indirect finance rather than direct finance.
c.) A municipality sells municipal bonds to investors. - This option does not involve an intermediary as the municipality directly borrows funds from individual investors. Therefore, it is an example of direct finance.
d.) A small business opens a line of credit from a commercial bank. - This option involves an intermediary, the commercial bank, making it an example of indirect finance rather than direct finance.
Based on the analysis, the correct answer is option c.) A municipality sells municipal bonds to investors.