Financial environment consists of financial markets, financial institutions, financial instruments ans services. Financial markets are the place where transaction of financial instruments and services are take place. Financial markets exists in order to bring buyer and seller of securities and financial services together. They are the mechanism that exists in order to facilitate the exchange of financial assets, thus adding to the liquidity of financial assets. Financial markets facilitate the flow of savings generated from one sector of economy to another, where there is the demand for funds. People and organizations that need to borrow money are brought together with those having surplus funds in the financial markets.
In financial markets, the corporate managers could raise funds by issuing securities or borrowing from banks. Financial markets help in bringing suppliers and borrowers together with the help of financial intermediaries directly or indirectly. Lenders or suppliers of funds exchange money for other financial assets that tend to provide a better future return.
The development of financial markets in any economy determines the degree of success of financial activities. Because financial markets add to the liquidity of financial securities, investors are generally interested to buy those securities for which a market exists.
