The major source of investment finance in the European model is

a. The stock market

b. Foreign investment

c. Reinvested profits

d. Bank loans

Question

The major source of investment finance in the European model is

a. The stock market

b. Foreign investment

c. Reinvested profits

d. Bank loans

BlackTom AI · Accepted Answer

The question asks: The major source of investment finance in the European model is

Option a: The stock market. While equity markets can provide capital, in the European model historically the dominant source of investment finance has often been internal funds rather than external equity raises. This makes this option less accurate as the major source.

Option b: Foreign investment. Foreign investment can play a role, but it is not typically characterized as the major source within the European model, where domestic sources and bank financing have been more central in many periods.

Option c: Reinvested profits. Reinvested profits, i.e., internal funds generated from a firm’s own operations, are a common and significant source of investment finance in many European economies, reflecting a reliance on retained earnings to fund capital expenditure and expansion.

Option d: Bank loans. Bank financing has historically been a dominant channel for investment funding in many European economies, especially for firms seeking external finance for investment, making this a strong contender for the major source in the European model.

In evaluating these, note that the European investment-finance structure often features a substantial role for internal funds (retained earnings) alongside bank-based external financing, with equity markets typically less central as a primary funding source compared to banks and reinvested profits. Since the prompt asks for the major source, considering the typical emphasis on banks in Europe, option d commonly aligns with the portrayal of the European financial model. However, interpretations can vary by country and period, and some analyses may highlight reinvested profits (option c) as a major internal source depending on the context.

LA-ECON-3537-750-14193-202520 Homework 3

The major source of investment finance in the European model is a. The stock market b. Foreign investment c. Reinvested profits d. Bank loans

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