INSURANCE SNAP

Definition of 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 a well-developed economy as individuals who retain private property have the ability to grow their capital. Firms are any business 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 or even nonexistent 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 for individuals making investments. A few of these may include risk, current market conditions, and competition, among others. Financial environment of a company refers to all the financial institutions and financial market around the company that affects the working of the company as a whole. The financial environment has a number of factors. It includes the financial institutions, government, individuals and firms around the business. Firms use their financial markets to keep their savings as property. It is extremely important for the monetary markets. Components of financial environment The financial environment is composed of three key components: (1) financial managers, (2) financial markets, and (3) investors (including creditors). Financial Managers Financial managers are responsible for deciding how to invest a company’s funds to expand its business and how to obtain funds (financing). The actions taken by financial managers to make financial decisions for their respective firms are referred to as financial management (or managerial finance). Financial managers are expected to make financial decisions that will maximize the firm’s value and therefore maximize the value of the firm’s stock price. They are usually compensated in a manner that encourages them to achieve this objective. Some more common career opportunities for financial managers are shown in Table 1.1. This table summarizes the different types of duties that financial managers perform. When a firm is initially established, one person may perform all managerial finance duties. However, as the firm grows, financial managers are hired to specialize in particular managerial finance duties. In larger firms, financial managers direct and manage departments of staff analysts who do the day-to-day analysis. In larger firms, financial managers fit within the firm’s organizational structure as shown in Figure 1.1. The key financial decisions of a firm are commonly made by or under the supervision of the chief financial officer (CFO), who typically reports directly to the chief executive officer (CEO). The lower portio