Which term describes a financing transaction between sources of funds (lenders) and users of funds (borrowers) which is conducted without an intermediary?

Which term describes a financing transaction between sources of funds (lenders) and users of funds (borrowers) which is conducted without an intermediary?

• A. Direct Financing
• B. Indirect Financing
• C. Securitization
• D. Leverage Financing

Answer: (A)

This question centers on how funds move from savers to borrowers and whether a middleman is involved. Direct financing is when there’s no financial intermediary like a bank or broker between the lender and the borrower. The borrower sells securities (like bonds) directly to investors, and terms are arranged without a middleman in the middle. This contrasts with indirect financing, where a financial institution collects funds from savers and then lends to borrowers, providing screening, monitoring, and liquidity. Securitization and leverage financing refer to specific structures or financing approaches that still typically involve intermediaries or particular financing techniques, not the basic channel of funds flow. So the term that best fits a financing transaction conducted without an intermediary is direct financing.

This question centers on how funds move from savers to borrowers and whether a middleman is involved. Direct financing is when there’s no financial intermediary like a bank or broker between the lender and the borrower. The borrower sells securities (like bonds) directly to investors, and terms are arranged without a middleman in the middle. This contrasts with indirect financing, where a financial institution collects funds from savers and then lends to borrowers, providing screening, monitoring, and liquidity. Securitization and leverage financing refer to specific structures or financing approaches that still typically involve intermediaries or particular financing techniques, not the basic channel of funds flow. So the term that best fits a financing transaction conducted without an intermediary is direct financing.