Methods Of Financing
There are two types of financing in a financial market the first one is known as direct financing. Indirect financing lenders and borrowers exchange money and financial claims directly. A borrower issues of financial claims on themselves and sell them directly to the lender for money. The lender holds the financial claim in their portfolios as interest bearing assets or put it to work when the best forex trading opportunities come along.
The financial claims are bought and sold in financial markets. The transactions appear as changes in the balance sheets of the two parties as such:
To the lender the money is considered an asset because of the interest payments you will receive on the principle that was led. This asset was purchased directly from the borrower. It comes in the form of a financial instrument.
To to the borrower of the money is considered a liability because it is a sum of money that he must pay money payments on to the lender on till the principle is paid back in full. This liability was incurred by signing an instrument that lays claim on his future income.
The claims issued by the borrower are called directly names and are typically sold in direct credit markets such as the money or capital markets. Direct financing gives the lender's analogy for their savings, which provides and expected return and the borrowers no longer need to postpone current consumption or forgo promising investment opportunities (such as some hot forex trading tips) for lack of funds.
In this manner surplus spenders in deficit spenders can exchange money in return for payments on principle. Not only is this a sound financial system it is in encouraged one as it allows deficit spenders the capital they need to ultimately become surplus spenders. When an economic system and economic policies become hostile to such a system due to corruption and malfeasance in the system becomes broken and surplus spenders cannot lend their money to the people who need it because there's no confidence that the principle will be paid back much less interest payments collected.
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