Objective: Explain how funds are transferred to borrowers from investors through the financial markets.

Financial markets aid in transferring funds between those who need funds such as businesses, governments, and individuals, and those who have funds to lend: the savers and investors. Borrowers and investors can choose between direct and indirect transfers. The method of transferring funds affects the risk and potential return of the investment. A knowledgeable investor will balance the two in determining how to invest.

• Describe how financial markets facilitate the transfer of funds from lenders to borrowers using both direct and indirect transfers.
• Ensure the following points are addressed:
  • the difference between direct and indirect transfers in the level of risk to the investor and potential return
  • the importance of financial markets