Investments & the Stock Market Objective: 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).
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.
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