Detail Explanation of the Financial Environment
A financial environment is a part of an economy with the major players being firms, investors, and markets. Essentially, this sector can represent a large part of an economy as individuals who hold private property have the ability to grow their capital. Firms are any businesses that offer goods or services to consumers. Investors are individuals or businesses that place capital into businesses for financial returns. Markets represent the financial environment that makes this all possible.Historically, firms were very small in economies or financial markets. Though a few firms have always been in existence, the ability for a large number of firms was not possible until markets became more mature. Mature markets allow for more access to resources necessary to produce goods and services. As firms begin to grow, expand, and multiply, higher capital needs to persist in order for firms to succeed. Capital sources include money from outside parties, such as investors.
Many times investors are individuals who have more capital than is necessary to provide a sufficient living standard. Any excess capital can actually make individuals more money if they invest the funds into a firm that offers a financial return. This symbiotic relationship in the financial environment allows both parties to increase their capital. Many different factors play a role in individuals making investments. A few of these may include risk, current market conditions, and competition, among others.
Classification of Financial Environment into Financial Markets
There are a number of bodies which are known as financial markets, that are responsible for making the financial environment. The financial environment in an economy deals with monetary transactions which are based on money, time, and risk. The financial environment can be further classified into financial markets which collectively constitute this environment.These financial markets include the Bond market, Forex market Stock Equities market, Money market, Commodity market, Cash market, Derivatives market, Over counter market, and Real estate market. which directly or indirectly impact the financial system, monetary institutions, financial institutions, and official organizations.
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