The investment environment

The environment is the context in which firms or companies operate and which insist on the firms operation. Investment environment refers to the financial assignment in which investors operate, consisting of the kinds of marketable securities available for purchase or sale of securities and how and where these securities are bought and sold. To state differently, investment environment refers to all the internal as well as external sources that have a bearing on the functioning of investment decisions.
Investment environment encompasses securities, security markets and intermediaries. The following section includes a brief description of each of these elements.



Securities
In general a security is a legal document that shows an ownership interest. In other words, security is a piece of paper evidencing the investor’s right to the assets. it is the legal representation of the right to receive prospective future benefits under stated conditions and to acquire or sell ownership interests. Share, bond, preferred stock, Treasury bill, commercial paper etc are the examples of securities.

Security markets
A security market (alternatively a financial market) is a mechanism designed to facilitate the exchange of financial assets or securities by bringing buyers and sellers of securities together. Precisely speaking, a security market allows suppliers and demanders of funds to make transactions.
There are various ways of categorizing security markets. The following classification predominant.
(i) Money market and capital market
This categorization is made on the basis of life span of securities. Money market refers to that financial market in which securities with a short term (one year or less) and highly liquid debt securities are traded. Thus, money market comprises the securities that have short in comparison to other securities. Money market facilitates flow of short term fund. The participants of money market are short term deficit units and surplus units. Instrument traded in the money market are Treasury bill, commercial paper, certificate of deposits etc.
In contrast to money market, capital market refers to the financial market in which long-term securities are traded. Specifically speaking, securities having life spans of more than one year are traded in the capital market. Long-term financial instruments such as stocks issued by corporations are basically traded in a capital market. Capital market facilitates flow of long term fund. The participants of capital market are long term surplus units and deficit units. Instruments traded in the capital market are common stock, treasury bonds, corporate bonds etc.

(ii) Primary market and secondary market
On the basis of the economic function, capital markets can be categorized into primary and secondary markets. The markets through which the funds are transferred from savers to investors are called primary market. Hence, the transferred of securities issued for the first time take place in the primary market. Primary market facilitates direct transfer of funds. The participants of primary market are issuing company, investment bankers and investors. The institutions that perform the role of an export in issuing new securities are called investment bankers. These bankers make a available advice to the business firms regarding the nature of security, maturity, interest rate and underwrite the issue of securities


Financial intermediaries
Financial intermediaries or institution are the organizations that channel the savings of governments, businesses, and individuals into loans or investments. Thus, financial intermediaries position themselves between providers and users of funds. the role of the financial intermediaries is to accumulate funds from various savers and lend those funds to borrowers and thus they actively participate in the money market and the capital market. Savings and loan associations, mutual funds, pension funds, credit unions, life insurance companies etc are the examples of financial intermediaries.