Introduction to Finance

3
CHAPTER 
1
The Financial Environment
L E A R N I N G O B J E C T I V E S
After studying this chapter, you should be able to do the following:
LO 1.1 
Defi ne 
fi nance 
and describe the three areas of fi nance. 
LO 1.2 
Explain why fi nance should be studied.
LO 1.3 
Describe and discuss the six principles of fi nance.
LO 1.4 
Identify the four components of the fi nancial system and describe their roles.
LO 1.5 
Describe fi nancial markets characteristics and the four types of fi nancial markets.
LO 1.6 
Identify several major career opportunities in fi nance.
LO 1.7 
Describe this textbook’s plan of study.
W H E R E W E H A V E B E E N . . .
As we progress through this book, we will start each chapter with a brief review of previ-
ously covered materials. This will provide you with a reference base for understanding the 
transition from topic to topic. After completing the text, you will be at the beginning of what 
we hope is a successful business career. 
W H E R E W E A R E G O I N G . . .
The fi nancial environment within which we live and work is composed of a fi nancial system, 
institutions, and markets. Part 1 of this text focuses on developing an understanding of the 
fi nancial institutions and markets that operate to make the fi nancial system work effi
ciently. 
Chapter 2 describes the U.S. monetary system, including how it is intertwined with the 
capital formation process and how it has evolved. Current types of money are described, and 
we discuss why it is important to control the growth of the money supply. In following 
chapters, we turn our attention to understanding how fi nancial institutions, policy makers, 
and international developments infl uence how the fi nancial system functions.