The Financial Market Environment

THE ROLE OF FINANCIAL INSTITUTIONS AND MARKETS Chapter 2 described why financial institutions and markets are an integral part of managerial finance. Companies cannot get started or survive without raising capital, and financial institutions and markets give firms access to the money they need to grow. As we have seen in recent years, however, financial markets can be quite turbulent, and when large financial institutions get into trouble, access to capital is reduced and firms throughout the economy suffer as a result. Taxes are an important part of this story as well because the rules governing how business income is taxed shape the incentives of firms to make new investments.

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