Download What are stocks? - Buncombe County Schools

2.03
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Objective 2.03 Explain how the Federal Reserve,
Stock Market, and e-commerce impact the
United States’ economic system.
The Federal Reserve
• Central Bank of the United States
• Regulates the money supply in the US
economy
– Raises and lowers the discount interest rate
– Puts money into circulation
– Removes money from circulation
The Discount Interest Rate
• The discount interest is the interest rate
charged to commercial banks and other
depository institutions on loans.
Impact of the Federal Reserve
• If the Federal Reserve raises the discount rate
– Consumer credit becomes more expensive
– Consumers buy fewer large goods—refrigerators,
boats, etc.
• If the Federal reserve lowers the discount rate
– Consumer credit becomes less expensive
– Consumers buy more expensive goods—cars,
washing machines, etc.
What are stocks?
• Stocks are shares of ownership in
corporations
• Shareholders have partial ownership in
the corporation
• Corporations are permitted to sell stock
to raise capital for the corporation
• Shareholders may receive dividend
payments from the corporation
What other investments are traded?
• Bonds—loans made by the investor to the issuer;
the investor is repaid with interest
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Corporate Bonds
Municipal Bonds
Treasury Bonds
US Savings Bonds
• Futures—agreement to buy or sell a commodity
(oil, gold, etc.) at some point
• Mutual Funds—combination of individual stocks
• Stocks, Bonds, Futures, and Mutual Funds are
called Securities.
What other investments are traded?
• Bonds:
– Corporate Bonds are debt securities issued by private and
public corporations. Companies issue corporate bonds to
raise money for a variety of purposes, such as building a
new plant, purchasing equipment, or growing the
business.
– Municipal Bonds are debt securities issued by states, cities,
counties and other governmental entities to finance
capital projects, such as building schools, highways or
sewer systems, and to fund day-to-day obligations.
– Treasury Bonds are issued by the US Treasury
– US Savings Bonds are issued by the US Treasury
The Stock Market’s Purpose
• The stock market is where shares of stocks,
bonds, and futures are bought and sold (or
traded). (Can be electronic.)
• The stock exchange is the actual physical
location where stocks are listed and traded.
– New York Stock Exchange (NYSE)
– American Stock Exchange
– NASDAQ—virtual exchange
The Stock Market’s Functions
• Provides companies with a way of issuing
shares of stock to people who want to
invest in the company. The sale of shares
of stock is a way for the corporations to
raise money.
• Provides a place for the buying, selling
and trading of stocks (and other
securities).
Impact of the Stock Market
on the Economy
• Bull Market
– Stock prices going up or rising
– Consumers are optimistic and buy stock hoping to earn
more money
– Consumers buy goods and businesses prosper
• Bear Market
– Stock prices are going down or falling
– Consumers are pessimistic and reluctant to buy stock
– Investors sell stock so they won’t lose more money
– Consumers buy fewer goods and businesses may lose
money. Some workers may lose jobs.
Impact of E-commerce
on the Economy
• Because consumers can purchase goods on the
Internet they have more choices in goods.
• Global competition is increased and US businesses
must compete globally.
• Fewer salespeople are needed in stores—a shift in
jobs is required. More people are needed in order
fulfillment and customer service.
• Goods are manufactured just-in-time—as they are
needed for distribution.