Economics Chapter 8

Stock portfolio

Collection of stocks from different individual corporations.

Stock exchange

Locations for trading stock. (First appeared in Great Britain and North Holland prior to 1700)

What is another stock index commonly quoted by the media?

Standard & Poor's 500. Wider variety of categories. Includes not only industrial production companies but other businesses also.

Bear Market

When the market is falling and investors are not buying stock and selling off shares.

Bull Market

When the market is rising and investors are buying stock.

stockholder

can vote on electing the board of directors. they have the power to hire and fire managers. they can expand into new markets

pros and cons of being a stock holder

cast votes on business decisions proposed by the corporation's board of directors at shareholder meetings. If you own the majority of the stock you would have control of that corporation.

Where did the stock exchange first appear

first appeared in Great Britain and North Holland

why did the stock market crash in 1929

people were investing based off their own expected value and it went higher than it was actually valued. People sold it because it wasn't worth anything. Mass stock selling occurred.

two ways the stock market is important today

provides opportunities for individuals to invest retirement plans are based on them provides information to corporate leaders, economic analysts, and governmental policymakers

S&P 500

the Standard and Poor's 500. intended to give a broader perspective on business in the U.S.

Why is the NYSE the most renowned stock exchange?

1. It's history 2. It's location 3. It's listings

Why do individuals purchase stock?

1. To make a profit 2. To collect the dividend payments.

Dividends

A distribution of a portion of the corporation's profits.

stock index purpose

A group of stocks that analysts use to report the behavior of prices within certain categories.

Tape

A message board indicating a stock transaction.

What did Charles Dow and Edward Jones do?

Found the Dow Jones Industrial Average (DJIA)

NASDAQ

National Association of Securities Dealers Automated Quotations No physical location, largest stock exchange that does not have a trading floor. it is complete electronic with no face to face trading

Stockbroker

Person who works for a brokerage company and specializes in buying and selling stock.

Mutual Funds

Privately managed stock portfolios.

Preferred stock

Receive dividends before common shareholders. Considered less risky, but can't vote on matters of importance. Corporation considers preferred stock more like debt than ownership. advantage- carries less risk of loss disadvantage- usually do not have the right to vote on matters of importance to the business

What is the SEC and why was it instituted?

Securities and Exchange Commission Founded by government to ensure citizens are correctly informed of the financial situations of corporations. Intent was to: 1. require companies to fully disclose their financial status 2. regulate the activities of stock brokers in the best interest of the investors.

Stock

Shares, or a portion of a corporation.

Floor traders

Stock traders who are physically present in the trading floor to execute requested trades.

Commission

Stockbrokers fee.

What is the most renowned stock market?

The NYSE (New York Stock Exchange) (founded in 1792)

What was the first US stock exchange and when was it established?

The Philadelphia Stock Exchange was founded in 1790.

What is speculation?

The act of buying and selling stocks for the purpose of taking advantage of short term price changes to make a profit. More like gambling than investing.

Speculative Bubble

When stock prices increase not due to the true value of a company's shares, but because of expectations.

What differences, if any, are there between investing in stock market and gambling. List at least 3 scriptural principles that should guide a Christian to this approach

The stock market doesn't carry the risk of a gambling game. When you buy stock you are purchasing partial ownership in a corporation. The purchase of stock should be an investment rather then a game of chance to make money. Stewardship matthew 25:27 covetness deut 5:21 love for God Matt. 22:36 love others Matt. 22:39

initial public offering (IPO)

it is less than the company's total stock because it allows them to raise the necessary capital but still retain majority ownership of their corporation. IPO is the initial sale of a company's stock through an investment bank

Why are stock markets important to retirement planning

it provides opportunities for individuals to invest in their future

How does the stock market reflect law of supply and demand

it reinforces the proceeds as a reflection of what consumers will pay for a product. if a buyer sees a company doing well demand will grow (vice versa)

SEC and its purpose

its purpose is to precent investors from making decisions in ignorance

Common stock

most prevalent type of stock, represents true ownership. Shareholders can vote on business decisions and the board of directors. advantage-own all of the company's profits disadvantage- the last to be paid if the firm fails

DJIA

most well known index Dow Jones Industrial Average 30 stocks