Question

1.Explain the diffrent between equity finance and debt finance with example?
2. Explain the difference between financial market and financial intermediary?

short answer required

Answer 1

1. Equity financing involves the process of raising capital through the sale of shares in a company. When a firm raises money for capital by selling debt instruments to investors, it is known as debt financing. The differences between equity finance and debt finance are:

a) When compared to debt financing, equity financing has the main advantage of no obligation to repay the money acquired through it.

b) The risk is high in debt financing and low in equity financing.

Example :Startup companies have very limited assets to keep as a security with the lenders, they do not have a track record too, therefore debt financing gets extremely risky. So, then equity financing steps in as investors can bear the risk. Equity financing is suitable for startup companies.

2.Financial markets are the places for buying and selling stocks, bonds, and other securities. Financial Intermediaries are intermediaries between the lenders-savers and facilitates the transfer of money supply between them. The differences between financial markets and financial intermediaries are:

a) A financial market is a place in which people trade financial securities. Whereas a financial intermediary is an institution or individual that serves as a middleman between the parties.

b) In financial markets,the organization which facilitate the trade is a stock or commodity exchange. This may be a physical location such as the NYSE, LSE, JSE, BSE or an electronic system such as NASDAQ. Banks, credit unions, financial advisers, insurance companies, cooperative societies etc. are considered as financial intermediaries.