Types of Finance

The financial system brings together savers and borrowers in following two ways.


Direct Finance
In direct finance, individual savers through financial markets hold the claims issued by individual borrowers.

Indirect Finance
In indirect finance individual savers through financial intermediaries hold claims over the portfolio of assets of the borrowers.

Financial markets provide play field to the financial instruments. Financial instruments are traded by household, business firms, government and foreigners in wide variety of financial markets or markets for financial instruments.
Financial market can at preliminary stage be termed as market for bonds and stock markets.