He has been losing money he will harvest a big wheat

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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 stock Dow Jones Industrial Average (DJIA) initial public offering (IPO) investment bank dividend 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.

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