Direct Transfer Between Savers And Borrowers Case Study

Q1) Discuss the two primary ways in which capital is transferred between savers and borrowers.
The two primary ways in which capital is transferred between savers and borrowers are by direct transfer of money and securities and through a financial intermediary. Talking about direct transfer, companies sell their stocks or bonds directly to the investor which is the savers we are talking over here. Main thing of direct transfer is that the companies will straight away head for the investors, throughout the process, none of the financial intermediary will involve in this business. This business is purely between the firm (Borrowers) and the investors (Savers). So how does direct transfer work between the savers and borrowers? The firm (Borrowers) sell their stocks and bonds to investors (Savers) in order to create a gain in money for example expanding purposes. It refers to the firm is borrowing money from the investor by selling them stocks or bonds for many wide range of purposes. A bond is functioned like a loan between investor and firm. The investor agreed to give a certain amount of amount of money for period of time into exchange for time to time interest payments. When the investor loan reaches the maturity date, thus the loan is given back.

Another method which capital is being transferred is through a financial intermediary. Going through a financial intermediary will need to include one more party as compared to direct transfer. For this intermediary, the savers will likely have to invest funds with the intermediary instead of the company directly. The intermediary will serve as a middle person. An example of financial intermediary will be a commercial bank. Commercial banks normally connects with customers that have...

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... let Michelle know that if she purchases the shares how liquid is the shares liquidity form. That is one of the factor we have to let her know she will gain money when she sell her shares more than what she purchased. Changes in the economy can affect the share price to rise or fall, so if let say the leading technology company fails in some part of the a random year while Michelle have already purchased the shares, her share value will become worthless because it does not have any worth value anymore, no one would purchase the shares from her as the company would not gain any more capital. I would suggest Michelle to be diversified, maybe spreading out some of the amount she willing to purchase on bonds instead of putting everything on shares, she might not earn profits as much but however this can lower the risk and cut the losses if the company happen to fall.