The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

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Answer 1

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Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

Chapter 23, Problem 1QFR

To determine

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Expert Solution & Answer

Explanation of Solution

The basic difference between direct finance and indirect finance is that former channels funds between ultimate savers and lenders and borrowers and spenders without involvement of third party. Conversely, later does the same thing but with involvement of the intermediary third party. Additionally, former is riskier than the later.

A firm or borrower and a saver might choose each of the direct and indirect finance methods. This is because of their respective advantages. These are discussed below:

Advantages of direct finance:

Direct finance reduces the cost of borrowing or lending since no intermediary third-party involvement exists there.
This allows diversification of funding resources through access of domestic as well as international money markets plus capital markets. So, this method is relatively beneficial for both parties.
Here, financial instruments used directly between needy and supplying groups are so much flexible and so it is convenient for both.

Advantages of indirect finance:

Direct finance faces the challenge of asymmetric information causing emergence of information costs and imbalance while making transactions. So, relatively, indirect finance method is suitable for transaction than direct finance.
Since the financial intermediaries take the duty of approaching investors and performing the further process, indirect financing is considered a faster way for businesses or firms to raise funds.

Economics Concept Introduction

Finance methods:

Direct and indirect finance methods are the methods of channelizing funds to the borrowers and spenders by the savers and lenders.In indirectfinancing, borrowers take resources by indirect way like financial intermediaries. This is different from direct financing method where the borrowers are directly related to thefinancial markets. The borrowers in direct financing methodissue securities directly in the market.

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Exercise 6 Imagine that you head production of a multinational food processing company. The ongoing uncer- tainty about costs means that you are unsure of the future cost of one of your inputs, x2. Your firm's production function is y = f(x1, x2) = x²x²² The output price p is 1000, x1 = 27, and wx₁ = 60. 1. Suppose the current input price is Wx2 = 50. Solve for the optimal choice of x2. 2. Now suppose that the probability the input price remains 50 is 0.65 and the probability that Wx2 60 is 0.35. Solve for the optimal choice of x2. Round down to the nearest integer. = 3. Finally, suppose the costs do actually rise, i.e., Wx2 = 60. Calculate the difference in profit from the uncertainty in (2) vs. the certainty in (1).

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Answer 2

Question

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

Chapter 23, Problem 1QFR

To determine

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Expert Solution & Answer

Explanation of Solution

The basic difference between direct finance and indirect finance is that former channels funds between ultimate savers and lenders and borrowers and spenders without involvement of third party. Conversely, later does the same thing but with involvement of the intermediary third party. Additionally, former is riskier than the later.

A firm or borrower and a saver might choose each of the direct and indirect finance methods. This is because of their respective advantages. These are discussed below:

Advantages of direct finance:

Direct finance reduces the cost of borrowing or lending since no intermediary third-party involvement exists there.
This allows diversification of funding resources through access of domestic as well as international money markets plus capital markets. So, this method is relatively beneficial for both parties.
Here, financial instruments used directly between needy and supplying groups are so much flexible and so it is convenient for both.

Advantages of indirect finance:

Direct finance faces the challenge of asymmetric information causing emergence of information costs and imbalance while making transactions. So, relatively, indirect finance method is suitable for transaction than direct finance.
Since the financial intermediaries take the duty of approaching investors and performing the further process, indirect financing is considered a faster way for businesses or firms to raise funds.

Economics Concept Introduction

Finance methods:

Direct and indirect finance methods are the methods of channelizing funds to the borrowers and spenders by the savers and lenders.In indirectfinancing, borrowers take resources by indirect way like financial intermediaries. This is different from direct financing method where the borrowers are directly related to thefinancial markets. The borrowers in direct financing methodissue securities directly in the market.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

Chapter 23, Problem 1QFR

To determine

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Expert Solution & Answer

Explanation of Solution

The basic difference between direct finance and indirect finance is that former channels funds between ultimate savers and lenders and borrowers and spenders without involvement of third party. Conversely, later does the same thing but with involvement of the intermediary third party. Additionally, former is riskier than the later.

A firm or borrower and a saver might choose each of the direct and indirect finance methods. This is because of their respective advantages. These are discussed below:

Advantages of direct finance:

Direct finance reduces the cost of borrowing or lending since no intermediary third-party involvement exists there.
This allows diversification of funding resources through access of domestic as well as international money markets plus capital markets. So, this method is relatively beneficial for both parties.
Here, financial instruments used directly between needy and supplying groups are so much flexible and so it is convenient for both.

Advantages of indirect finance:

Direct finance faces the challenge of asymmetric information causing emergence of information costs and imbalance while making transactions. So, relatively, indirect finance method is suitable for transaction than direct finance.
Since the financial intermediaries take the duty of approaching investors and performing the further process, indirect financing is considered a faster way for businesses or firms to raise funds.

Economics Concept Introduction

Finance methods:

Direct and indirect finance methods are the methods of channelizing funds to the borrowers and spenders by the savers and lenders.In indirectfinancing, borrowers take resources by indirect way like financial intermediaries. This is different from direct financing method where the borrowers are directly related to thefinancial markets. The borrowers in direct financing methodissue securities directly in the market.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

Chapter 23, Problem 1QFR

To determine

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Expert Solution & Answer

Explanation of Solution

The basic difference between direct finance and indirect finance is that former channels funds between ultimate savers and lenders and borrowers and spenders without involvement of third party. Conversely, later does the same thing but with involvement of the intermediary third party. Additionally, former is riskier than the later.

A firm or borrower and a saver might choose each of the direct and indirect finance methods. This is because of their respective advantages. These are discussed below:

Advantages of direct finance:

Direct finance reduces the cost of borrowing or lending since no intermediary third-party involvement exists there.
This allows diversification of funding resources through access of domestic as well as international money markets plus capital markets. So, this method is relatively beneficial for both parties.
Here, financial instruments used directly between needy and supplying groups are so much flexible and so it is convenient for both.

Advantages of indirect finance:

Direct finance faces the challenge of asymmetric information causing emergence of information costs and imbalance while making transactions. So, relatively, indirect finance method is suitable for transaction than direct finance.
Since the financial intermediaries take the duty of approaching investors and performing the further process, indirect financing is considered a faster way for businesses or firms to raise funds.

Economics Concept Introduction

Finance methods:

Direct and indirect finance methods are the methods of channelizing funds to the borrowers and spenders by the savers and lenders.In indirectfinancing, borrowers take resources by indirect way like financial intermediaries. This is different from direct financing method where the borrowers are directly related to thefinancial markets. The borrowers in direct financing methodissue securities directly in the market.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 23, Problem 1QFR

To determine

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Expert Solution & Answer

Explanation of Solution

The basic difference between direct finance and indirect finance is that former channels funds between ultimate savers and lenders and borrowers and spenders without involvement of third party. Conversely, later does the same thing but with involvement of the intermediary third party. Additionally, former is riskier than the later.

A firm or borrower and a saver might choose each of the direct and indirect finance methods. This is because of their respective advantages. These are discussed below:

Advantages of direct finance:

Direct finance reduces the cost of borrowing or lending since no intermediary third-party involvement exists there.
This allows diversification of funding resources through access of domestic as well as international money markets plus capital markets. So, this method is relatively beneficial for both parties.
Here, financial instruments used directly between needy and supplying groups are so much flexible and so it is convenient for both.

Advantages of indirect finance:

Direct finance faces the challenge of asymmetric information causing emergence of information costs and imbalance while making transactions. So, relatively, indirect finance method is suitable for transaction than direct finance.
Since the financial intermediaries take the duty of approaching investors and performing the further process, indirect financing is considered a faster way for businesses or firms to raise funds.

Economics Concept Introduction

Finance methods:

Direct and indirect finance methods are the methods of channelizing funds to the borrowers and spenders by the savers and lenders.In indirectfinancing, borrowers take resources by indirect way like financial intermediaries. This is different from direct financing method where the borrowers are directly related to thefinancial markets. The borrowers in direct financing methodissue securities directly in the market.

Answer 6

Chapter 23, Problem 1QFR

To determine

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Expert Solution & Answer

Explanation of Solution

The basic difference between direct finance and indirect finance is that former channels funds between ultimate savers and lenders and borrowers and spenders without involvement of third party. Conversely, later does the same thing but with involvement of the intermediary third party. Additionally, former is riskier than the later.

A firm or borrower and a saver might choose each of the direct and indirect finance methods. This is because of their respective advantages. These are discussed below:

Advantages of direct finance:

Direct finance reduces the cost of borrowing or lending since no intermediary third-party involvement exists there.
This allows diversification of funding resources through access of domestic as well as international money markets plus capital markets. So, this method is relatively beneficial for both parties.
Here, financial instruments used directly between needy and supplying groups are so much flexible and so it is convenient for both.

Advantages of indirect finance:

Direct finance faces the challenge of asymmetric information causing emergence of information costs and imbalance while making transactions. So, relatively, indirect finance method is suitable for transaction than direct finance.
Since the financial intermediaries take the duty of approaching investors and performing the further process, indirect financing is considered a faster way for businesses or firms to raise funds.

Economics Concept Introduction

Finance methods:

Direct and indirect finance methods are the methods of channelizing funds to the borrowers and spenders by the savers and lenders.In indirectfinancing, borrowers take resources by indirect way like financial intermediaries. This is different from direct financing method where the borrowers are directly related to thefinancial markets. The borrowers in direct financing methodissue securities directly in the market.

Answer 7

Chapter 23, Problem 1QFR

To determine

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Answer 8

Expert Solution & Answer

Explanation of Solution

The basic difference between direct finance and indirect finance is that former channels funds between ultimate savers and lenders and borrowers and spenders without involvement of third party. Conversely, later does the same thing but with involvement of the intermediary third party. Additionally, former is riskier than the later.

A firm or borrower and a saver might choose each of the direct and indirect finance methods. This is because of their respective advantages. These are discussed below:

Advantages of direct finance:

Direct finance reduces the cost of borrowing or lending since no intermediary third-party involvement exists there.
This allows diversification of funding resources through access of domestic as well as international money markets plus capital markets. So, this method is relatively beneficial for both parties.
Here, financial instruments used directly between needy and supplying groups are so much flexible and so it is convenient for both.

Advantages of indirect finance:

Direct finance faces the challenge of asymmetric information causing emergence of information costs and imbalance while making transactions. So, relatively, indirect finance method is suitable for transaction than direct finance.
Since the financial intermediaries take the duty of approaching investors and performing the further process, indirect financing is considered a faster way for businesses or firms to raise funds.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Finance methods:

Direct and indirect finance methods are the methods of channelizing funds to the borrowers and spenders by the savers and lenders.In indirectfinancing, borrowers take resources by indirect way like financial intermediaries. This is different from direct financing method where the borrowers are directly related to thefinancial markets. The borrowers in direct financing methodissue securities directly in the market.

Answer 12

Ch. 23 - Prob. 1QFR Ch. 23 - Prob. 2QFR Ch. 23 - Prob. 3QFR Ch. 23 - Prob. 4QFR Ch. 23 - Prob. 5QFR Ch. 23 - Prob. 6QFR Ch. 23 - Prob. 7QFR

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

To explain: The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.

Explanation of Solution

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Chapter 23 Solutions

To explain:

The difference between direct andindirect finance method. The reasons for a borrower or a saver select any of these methods.