Question

The capital allocation process involves the transfer of capital among different entities that include individuals, small businesses, banks, financial intermediaries, companies, mutual funds, and other market participants. In a developed market economy, capital flows freely between entities that want to supply capital to those who want it. This flow of capital can be classified in three ways. In the table below, identify the nature of capital transfer given in the scenario with its appropriate classification: Scenario Indirect Indirect Transfers through Direct transfer Transfers Investment banks through Financial intermediatory xEdu.com is an early-stage start-up company that plans to issue its first public common stock-called an initial public offering (IPO) n six months. It hires an investment bank to underwrite the issue. Based in Grass Valley, California, L & M Seeds Co. is a small company that manufactures organic seeds. To raise capital, the company sells stocks directly to savers in Grass Valley without involving any bank or financial intermediaryCitibank issues a loan to Jennifer for the expansion of her flower delivery business Erin borrows money from her uncle to buy a new laptop.

Answer 1

Answer:

The best answers to the questions are

1. Capital Allocation Process

2. Direct Transfer

Explanation:

Answer 2

Answer:

xEdu.com is an early-stage start-up company that plans to issue its first public common stock-called an initial public offering (IPO) n six months. It hires an investment bank to underwrite the issue. INDIRECT TRANSFER THROUGH AN INVESTMENT BANK: xEdu.com hired and investment bank to carry out its IPO.

Based in Grass Valley, California, L & M Seeds Co. is a small company that manufactures organic seeds. To raise capital, the company sells stocks directly to savers in Grass Valley without involving any bank or financial intermediary DIRECT TRANSFER: the company sold stocks by itself to local residents.

Citibank issues a loan to Jennifer for the expansion of her flower delivery business INDIRECT TRANSFER THROUGH FINANCIAL INTERMEDIARIES: Jennifer got a loan from a bank.

Erin borrows money from her uncle to buy a new laptop. DIRECT TRANSFER: Erin's uncle gave her the money directly.