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Unformatted text preview: g well for Jack in the
last year or so. He has been losing money. He will harvest a
big wheat crop in the next few months and is afraid that
wheat prices may drop before he takes his wheat to market.
• How can Jack protect himself from a drop in the
price of wheat?
10:56 A.M. As Karen watches the financial
news, someone on the television says, “If he times his
purchases correctly, he can make millions.” Karen
wonders whether the investment types on television
know something she doesn’t know. How can a person
make millions, she wonders, just by timing purchases
(what purchases?) correctly.
• Does timing matter?
5:42 P.M. Wilson rides a commuter train
home after a busy day at work. The person in the
seat next to him is reading the Wall Street Journal.
Wilson turns to him and asks, “What do you think
about what the market did today?” “It was quite
unusual,” came the response.
• What does “the market” refer to? 429 16 (428-459) EMC Chap 16 11/18/05 9:33 AM Page 430 Focus Questions
What are stocks?
Where are stocks bought and sold?
What is the Dow Jones Industrial Average?
What does it mean to “buy the market”? Stocks Key Terms
Dow Jones Industrial Average (DJIA)
initial public offering (IPO)
index Financial Markets stock
A claim on the assets of
a corporation that gives
the purchaser a share of
the corporation. Everyone has heard of stocks and bonds.
Everyone knows that stocks and bonds can
be sold and purchased, but not everyone
knows the economic purpose served by
stocks and bonds.
Buying and selling stocks and bonds
occurs in a financial market. Financial markets serve the purpose of channeling money
from some people to other people. Suppose
Jones saved $10,000 over two years and that
Smith is just starting a new company. Smith
needs some money to get the new company
up and running. On the other hand, Jones
would like to invest the savings and receive a
return. Jones and Smith may not know each
other; in fact, they may live on opposite ends
of the country. Wha...
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This document was uploaded on 01/16/2014.
- Winter '14