Banking and Finance

Running head: Banking and Finance
Banking and Finance
Essay
System04104
12/8/2018

Banking and Finance
1
Answer-1
A distribution channel in banking is a route of lending or borrowing money from different
financial institutions to the borrower. If we consider bank services, then distribution channel
is the way of delivering banking products or services to its customers. Apart from this, there
are several economic units such as households, governments, and firms. Each economic unit
has to consider their income for the expenses and these economic units can have one of these
three budget positions; a balanced budget position, a surplus budget, or a deficit budget. The
mismatch between expenses and income provides creates an opportunity for trade or
borrowing from other financial institutions. The financial institutions (lenders) provide
money to borrowers by following two channels; direct channel and indirect channel (Hubbard
and Varma, 2014). Therefore, to meet the requirements of the customers, bank provides
multiple channels to provide service to their customers. In recent times, bank provides wide
services to its customers through different distribution channel such as ATM’s, bank
branches, online facilities such as net banking, separate mobile app of a particular bank,
portals, and web banks etc.
Direct Channel: direct channels are those channels that provide direct money transfer to the
borrower. Where a borrower can directly contact with the bank or other financial institutions
for money borrowing and even directly invest the money in those financial institutions. These
financial intermediary can be in form of an institution, market, or a person itself through
which money can be borrow by a borrower. Banks are the large financial institutions that
provide direct facilities to its customers for money borrowings and also one can invest their
money in the banks. Apart from this bank, also involve in several bank products such as
insurance and loans etc. If a person borrowing money from the friend, this is also type of a
direct financing or direct channel of financing. The direct channel of financing also considers
those markets in which lenders directly lend their money to borrowers. The direct channel of
financing also involves those lenders in the rural areas, which lend money on high interest to
the borrower (Pedersen, 2015). Generally, they charge a very high interest rate on the money
they lend to other people.
Indirect Channel: Indirect channel are those channels through which borrower can borrows
money or funds via a financial intermediary. Purchase of stocks and bonds directly from the
companies that are selling or issuing shares in the market is also a type of an indirect channel

Banking and Finance
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of financing, where people indirectly invest their money in those corporate companies, those
issues shares, and bonds etc. These indirect financial arrangements take place through
financial markets where large numbers of financial institutions are working to lend money to
its investors. This is different from the indirect finance channels where people can direct
borrowing money form the lenders through initial public offerings (IPO) or auctions (where
price is not determined in advance, rather depends on the bid value), while in indirect channel
there will be intermediate financial institution involves to lending the money to borrows and
invest their money somewhere else.
However, in above discussed distribution channels, banks are the major source of financing
to the people and also borrow money form people and paid them interest in return. Bank is
the largest means of direct financing to the people. While if we consider, indirect channel
then stock markets where large number of financial institution involves in lending and
borrowing money on behalf of different corporate companies. Bank are the safe side for
borrowing or investing money, because there very minimum risk involved in bank
borrowings or investing the money in banks, while in stock market is the highly risky channel
for investment and borrowing money via intermediary.
Answer-2
Assets are commonly represents the economic resources or ownership that can be converted
in cash in future. The financial and physical assets both are different from each other in terms
of their value, feature, and characteristics. These differences are explained below:
Physical Asset Markets vs. Financial Asset Markets
Physical assets are those assets that can be seen, touched, and it is in form of identifiable
physical form that can easily be identified. We can say that physical assets are tangible.
Example of such assets is land, building, machinery, tools, gold, silver, vehicles etc. If we
consider the accounting point of view, then it can be liquidated when these resources wound
up its interest. These type of assets usually loss its value which is termed as depreciation,
because of its regular use and due to wear and tear of the asset because of continuous use.
Some tangible assets are perishable in nature such as container of fruits, flowers that are not
used within the time period etc. (Ahrne, Aspers, and Brunsson, 2015).