Question

Please correctly answer each part of question 1

1. Capital allocation process Aa Aa E 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:

Answer 1

Direct Transfer

Direct transfer is the transfer between borrower and saver and no intermediary is involved.

Transfer through investment bank

Investment bank means financial institution that assist in transfer of funds from saver to capital raiser through issue of securities. They act as an agent to the client in raising the funds.

Transfer through financial intermediary

Financial intermediary is the financial institution that assist in channelling the surplus funds between saver and borrower.

S No	Nature and classification of transfer
1	The transfer made by Elliot is indirect and it is through financial intermediaries.
2	The transfer by Steve is direct transfer as no intermediary is involved.
3	The transfer by partners to the capital is direct transfer as no intermediary is involved.
4	The transfer of fund through long term bond through investment bank is Transfer through investment bank