The financial environment consists of companies, investors, and markets, allowing for the growth of capital. Mature markets provide resources for businesses to succeed, and investors can make money by investing in companies. Markets can be local or international, and the financial environment is subject to the business cycle.
A financial environment is part of an economy with the main players as companies, investors and markets. Essentially, this sector can represent a large part of a well-developed economy since the people who retain private property have the ability to grow their capital. Businesses are any business that offers goods or services to consumers. Investors are individuals or companies that invest capital in companies for financial returns. The markets represent the financial environment that makes all of this possible.
Historically, companies were very small or even non-existent in economies or financial markets. Although some companies have always existed, the capacity of a large number of companies was not possible until the markets became more mature. Mature markets allow greater access to the resources needed to produce goods and services. As businesses begin to grow, expand, and multiply, more capital must persist for businesses to succeed. Sources of capital include money from third parties, such as investors.
Investors are often people who have more capital than is necessary to provide a sufficient standard of living. Any excess capital can make people more money if they invest the funds in a company 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 for people who make investments. Some of these may include risk, current market conditions, and competition, among others.
The last player in the financial environment is the market. Markets represent any place where sellers and buyers can meet and trade items. In most cases, the exchange is capital for goods or services. Markets can be local, regional or international, depending on the economy. Free markets tend to have fewer government regulations, allowing for more exchange of goods due to lower transaction costs.
A financial environment can exist anywhere as long as the main players exist in the economy. Newer markets tend to have fewer resources and lower levels of economic activity due to their lack of resources. The financial environment is also subject to the business cycle, which dictates the growth and decline stages of the economy. For example, when a new market or financial environment receives an influx of resources, it has the ability to grow and expand as players see fit. The decline occurs when the market is saturated with goods and services due to a lack of demand.
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