BASIC INFORMATION ABOUT ITS INFLUENCE ON THE AMERICAN ECONOMY

The Stock Market

What is Stock?

Def: an instrument that signifies an ownership position (called equity) in a corporation, and represents a proportional share in the corporation’s assets and profits

HUH?Basically, buying or owning stock in a

company is like buying a small piece of that company.

Ex: Susie owns 50 shares of stock in a company that has 1000 shares overall. Therefore, Susie owns 5% of the company

Companies will sell stock to get money for a few reasons: Invest in research Hire more employees Create new products Enlarge or upgrade

their buildings Improve existing

products

What is the Stock Market

The Stock Market is a measure of the value of different companies’ stocks When the prices of stock rise, their value increases When the prices of stock falls, their value decreases

If you owned stock in a company – like Ford – and their value increased, the value of the stock you own would also increase. But, if the company suffered economic hardship, the value of your stock would decrease. Your stock value is a direct reflection of the value of

the company

The Stock Market

The value of stocks is often in a fluctuating state

The Stock Market serves as an economic indicator – a strong market reveals a strong economy; when the market “tanks”, people begin to worry about he state of the economy

External events can influence the Stock Market. Such as?????

History of the Stock Market

Oldest existing stock certificate is from 1606 for a Dutch company involved in the spice industry

Most stock business revolved around shipping and spice trades

Seat of economic commerce became London – idea of trading stocks came to U.S. with colonists

Alexander Hamilton (1st U.S. Treasurer) believed stock trade was essential to building and maintaining a strong economy

History of the Stock Market

Hamilton encouraged people to exchange stock in NYC on the corner of Broad and Wall Streets

In 1817, traders organized the New York Stock Exchange at 40 Wall St.

Stock Market Crash

Tuesday, Oct. 29, 1929

The Dow Jones Industrial Average had been at an all-time high, but it was becoming clear that the market was going to contract

There was a rush to sell stocks – the ticker machines and phone lines were jamming, which furthered chaos and the desire to sell

Stock owners who had bought “on margin” (paid only a percentage) found themselves deeply in debt

Why the Stock Market Exists

The Stock Market provides a realistic value of stocks in various companies

Allows stock holders to track their investments

Allows prospective stock buys to make informed decisions about different companies

Provides a physical “place” for stock to be exchanged (on the “trading floor”) Much of this is done via the internet now

DOW NASDAQ

Dow Jones Industrial Average

An index that shows how 30 large, publicly owned companies have traded during a standard trading session on the stock market

Most of the 30 companies no longer have anything to do with heavy industry

National Association of Securities Dealers Automated Quotations

Has 2,872 listings = 2nd largest trading market in the world

Highest trading volume globally

Measures of Stock Strength

Benefits of the Stock Market

Instant availabilityLittle possibility of being caught in

defaultSafeguards in place to protect

investors from fraud(by the Securities and Exchange Commission)Not that this DOESN’T happen….

Opportunity to own part of a major corporation

Opportunity for economic gain

Risks Involved

Ignorance – haven’t studied the market trends or corporation

There is a high level of risk involved – there is no guarantee of investment returnParticularly when people invest in

“start-up” companies – could strike it rich, could lose entire investment

“Dotcom” Bubble BurstingFees for buying or trading stock

Other Overseas Markets

There are various markets for stock exchangeTop 5 – in Trillions

NYSE - $9.57 Tokyo - $ 3.10NASDAQ – $2.77Euronext (Paris)-

$2.26London S.E. - $2.20

RELATES TO EVERYONE’S LIFERELATES TO U.S. STRENGTH

INFLUENCES ECONOMYINFLUENCES YOUR WALLET

CURRENT ECONOMIC EVENTS

Why Should I Care?