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Download 2.03 Federal Reserve & Stock Market
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2.03 Federal Reserve & Stock Market 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 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 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. 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). Stocks help . . . Stocks are . . . Stock is ownership in a company. (Equity) If you were to divide your business up into small pieces and sell those pieces, you would essentially have issued stock. you raise money from selling those "pieces" of your business which can be used to build new plants and facilities, pay down debt, or acquire another company. smart owner will keep at least 51% of the stock, which will allow them to retain control of the day to day activities controlling shareholder What is the Dow Jones Industrial Average? An index of thirty, blue chip stocks that are traded in the United States. It is believed that by looking at the companies on the list, a person can get a general picture of how the market as a whole is performing. The most quoted and followed index in the world, and dates back to May 26, 1896. Bear Market A prolonged period in which investment prices fall, accompanied by widespread pessimism Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly 1929 Crash most famous crash in U.S. history Dow Industrials hit a high of 386 in September, 1929. It did not get back to that level until November, 1954 Dow dropped 89% 1987 – The Market fell dramatically. Bull Market long term uptrend (months to years) price movement in any market An extended period of generally rising prices characterized by optimism, investor confidence and expectations that strong results will continue. 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.