Define indirect finance direct finance debt and equitySoluti

Define: indirect finance, direct finance, debt, and equity.

Solution

Direct finance: When a firm borrows funds directly issuing securities from financial market i.e. without help of any financial institution.       Direct finance can be in nature of equity or debt

Indirect finance: When firm borrows funds using financial intermediaries to raise capital for the firm. Indirect finance can be in nature of equity or debt.

Equity: Equity is unit or certificate which represents the ownership in the firm. The ownership is proportionate to the value of the share or equity purchased. Equity shareholders have voting rights in the firm. No fixed payment is obligated towards equity.

Debt: Debt is borrowing which a firm owes to its creditors. Debt is for specific period of time. A fixed payment is obligated towards debt which is called interest or coupon.