What Are Financial Markets And How Do They Affect The Economy?
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So what are financial markets, anyway? The word is confusing because it is used in so many inaccurate ways. Some people think of it as the stock market alone while others think of it as any market that involves the exchange of capital. In this article, we will clear all this confusion.
One good way to better understand these financial markets is by comparing them to places in which economic transactions take place. The investor will share in the profits of a company if ever everything goes well, brought about the particular investment that he or she put into it. Conversely, if a company does not do well, the investor also suffers a loss.
In talking about what are financial markets, what most people think of is the stock market. Stocks are shares in a corporation that has gone public. A company will sell stocks to the general public in order to raise funds for its own growth. In return, when the company makes a profit, so, too, does the investor. The stock market is what keeps the US economy growing.
The Dow Jones is actually three types of averages: the Dow Jones Industrial Average, the Dow Jones Transportation Average, and the Dow Jones Utility Average. The stocks that make them up are sold on exchanges. In the US, two of the major exchanges are the New York Stock Exchange and the NASDAQ.
Mutual funds are groups of stocks, which makes buying and selling much easier. Individual stocks create volatility in the marketplace when they are bought and sold, but trading with large groups of stocks, mutual funds, creates a much calmer trading environment. Investors who buy mutual funds can make money if they pick the right mutual funds.
A bond can be defined as debt security. It works much like an I. O. U. People buy bonds because they want to earn interest from lending money to the government, a federal agency, a municipality, or a corporation. Usually, when stocks go up, bonds go down. Numerous types of stocks exist. For example, there are Treasury Bonds, municipal bonds, and corporate bonds. Bonds affect mortgage interest rates.
Also, in defining what are financial markets, it's important to consider the significance of commodities. Commodities are essential raw materials necessary for an economy. They are natural products like oil, gold, cattle, wheat, and orange juice. Investors buy and sell on speculation, and they are often called speculators. Some commodities can affect the entire US economy, including the stock market. When oil goes up or down, the price is a result of what happens in the commodities future market. A future is payment for something now that will be delivered later. Futures can be leveraged, meaning money can be borrowed to buy the commodity.
Article Source: Articlelogy.com
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