Financial managers and investors don’t operate in a vacuum—they make decisions within a large and complex financial environment. This environment
includes financial markets and institutions, tax and regulatory policies, and the state of the economy. The environment both defines the available financial
alternatives and affects the outcomes of various decisions. Therefore, it is crucial that financial managers and investors have a good understanding of the
environment in which they operate. Good financial decisions require an understanding of the current direction of the economy, interest rates, and the stock market—but figuring out what’s likely to happen is no trivial matter. Recently, the financial environment has been extraordinarily favorable to
financial managers and investors: The economy has not seen a recession for nearly 10 years; interest rates and inflation have remained relatively low; and the stock market has boomed throughout most of the past decade. At the same time, the financial environment has undergone tremendous changes, presenting financial managers and investors with both opportunities and risks.