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Direct Finance

Direct finance is the process where borrowers raise funds directly from lenders in the financial markets, without using intermediaries like banks. In direct finance, individuals, companies, or governments issue securities like bonds or stocks to raise money from investors. This approach can be more efficient for large entities that don’t want to rely on bank loans, as it allows them to tap into a broader pool of capital. Investors, on the other hand, get a chance to invest directly in companies or governments through these securities, potentially earning returns through interest or dividends.

Example

A company issues corporate bonds to raise funds directly from investors, bypassing the need for a bank loan.

Key points

Involves raising funds directly from investors.

Bypasses intermediaries like banks.

Common in large-scale corporate or government funding.

Quick Answers to Curious Questions

Direct finance is when borrowers raise funds directly from investors without using intermediaries like banks.

Companies issue securities like bonds or stocks to raise money directly from investors.

It allows borrowers to access capital from a broader market, often at more favorable terms than bank loans.
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