Financial environment refers to the environments within which a firm operates.
Generally, a financial environment comprises of the finance manager, financial market and investors.
The financial market may be the primary, secondary and the money market.
It refers to the market where new shares or securities are issued by the companies.
This refers to the market where shares or securities are transacted further.
It refers to the market where money or financial assets in the form of bonds, short term loans, etc., are transacted. Apart from financial market various institutions like banks, financial institutions, the tax authority and the Government also form a part of the financial environment of a firm.
Investors may be small investors or institutional investors; some investors want to get dividend while some others want controlling stakes. All these influence financial decisions of a firm. So the financial environment refers to the institution, individuals and authoritative bodies that have significant influences on the financial decisions of a firm.
The financial environment is influenced by several economic factors some of which are:
i. Government, economic and monetary policies,
ii. Taxation policy of government including personal tax and corporate tax,
iii. Government industrial policy,
iv. Availability of skilled manpower,
v. Foreign exchange rates,
vi. Policy of government towards FDI,
vii. Trade agreement with different foreign countries, etc.