Stocks and Bonds

American businesses need huge amounts of money to develop new products, purchase new equipment, build factories, and pay other expenses of doing business. This money is known as capital. Much of it comes from investors (capitalists), who expect to receive a profitable return on the money that they invest. Without investors, the Amer­ican economy would not be able to grow and produce the goods that consumers want. In other words, a capitalist economy depends on capitalists to keep it growing.

Most investments take one of two forms-stocks or bonds. Stockholders purchase shares of a business. If the business does well, they share in the profits of the company by receiving dividends. On the other hand, people who purchase bonds lend their money to a business in exchange for a fixed rate of return (a percentage of the face value of the bond) known as interest. Both stockholders and bondholders hope that the value of their investments will increase. Stocks and bonds are traded on national exchanges. The New York Stock Exchange is located on wall Street in New York City. As a result, the world of investors is commonly known as Wall Street. Stock prices are usually affected by the profits of the company, the general economic climate, and the outlook for the company in the near future. Bond prices are primarily influenced by interest rates. If inter­est rates rise, bond prices usually fall and vice versa.

In recent years, there has been a huge growth in the volume of stock and bond sales. Between 1990 and 1999, the number of shares of stock traded on exchanges each year rose from about 4.5 billion to more than 350 billion. On an average trading day, more than a billion shares of stock change hands on the New York Stock Exchange and on the Nasdaq Stock Exchange. It is not unusual for each of those exchanges to handle more than 2 billion shares in a day. In 1987, the value of all stocks traded on stock exchanges was $1.9 trillion. By 1999, that figure had jumped to more than $14 trillion.

In 1980, only about 27 million Americans owned stocks. Today, more than 120 million individuals are stockholders. And many more are indirectly involved in the markets through their participation in pension plans, credit unions, and insurance plans. In fact, most of the stocks and bonds that are traded are owned not by individuals but by large investors such as banks, insurance companies, pension funds, and mutual funds (com­panies that invest in many different businesses in order to minimize risk).

Check your comprehension.

What is the difference between stocks and bonds?

Where are stocks and bonds traded?

Дата добавления: 2015-08-27