The Financial Environment

The Financial Environment                            

In order to understand the financial environment we must understand the terms financial assets, real assets and marketable securities.

Financial Market

Financial Market         

When a company invests idle funds in marketable securities, it has to connect with financial market.

Purpose behind Financial Markets

It is because the savings of various individuals, financial asset exist in an economy.

Purpose of Financial Markets in an economy is to allocate savings efficiently to ultimate users.

If in Real Asset,

Savings = Investment

There would be

NO External Financing

NO Financial Assets

NO Money or Capital Market

In the economy,

Savings-Surplus Unit (Savings> Investment)

Provide funds to

Savings-Deficit Unit (Investment> Savings)

Types of Financial Markets

a)     Money and Capital Markets.

b)    Primary and Secondary Markets.

Financial Intermediaries

Financial Intermediaries                     
Borrowers←   Financial Intermediaries    →Lenders

Financial Intermediaries transforms direct claims into indirect claims.

Savers←         Financial Intermediaries    →Investors

Savers deposits funds with financial intermediaries, and in turn, financial intermediaries lending these deposits to the ultimate investors.

Financial Intermediaries purchase securities and, in turn, issue their own securities to the public.

Financial Intermediaries consists of