By: Keyla M. Pagán. Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? Capital markets – are processes.

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Presentation transcript:

By: Keyla M. Pagán

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? Capital markets – are processes employed for transforming people’s savings into investments, creating the injection of money that corporations need to make more goods and offer more services to fulfill society’s needs. Capital markets make it easy for companies that need money to expand their production of consumer demanded goods and servic es.

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? Example of capital market: General Electric is such a big company that it is a Dow stock, ( Dow Jones: is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chips stocks, primarily industrial). General Electric offers bonds and shares of common stock for the public to buy through capital markets. The money the company got from selling the stocks or bonds was used by GE to create the factory that produced the air conditioning units to benefits the people that use daily these kind of products.

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? How capital market can help to improve their life style? For Example : When people retire or are short on cash, they can sell the stock or bonds and use the money as they choose. Some people have done so well in the stock market from wise investments that they have been able to retire early because they no longer have to worry about money. There is a vital “circular-flow ” of capital, goods and services between individuals, households and corporations that has created the vast abundance of conveniences we take for granted today.

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? What is the importance of a healthy Capital Market system? It is key to economic success because it provides stock and bonds abundance in any country. Major economies have the same issue: Don’t have a capital markets system that allow individual citizens to participate in the economy as lenders (by buying bonds) or investors (by buying stock).

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? Major economies have the same issue In the majority of markets there is no connection in command economies between what goods and services consumers really need and want and the existence of companies to provide those goods and services. The recommended system is one that allows workers to selectively invest in stocks, lend their savings in the form of bonds or even abstain from participation in the capital markets if they so choose.

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? How could Capital Markets develop? It can begin when someone cultivates an innovative idea for a product or service that nobody has thought of before. These people are called entrepreneurs: they need capital to buy patents, build a factories, push the product through the wholesale and/or retail supply chains, and market it so that consumers know about it. All of this could be very expensive and exhaustingly time consuming without the stock market.

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? How could Capital Markets develop? If the business of an entrepreneur starts to grow fast. This could implicate a need to make more money to expand production and to achieve the demand. The next step this person will probably take is to go get a bank loan. This could be a problem because banks are difficult to deal with and have a lot of rigid rules and require collateral and personal guarantees from the entrepreneur.

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? Options available for entrepreneurs: The first way: raise money (capital) for his/her company is to sell bonds. The action of sell bonds is buying money directly from public investors instead of buying public bank deposits through a banker. One of the advantages of bonds is that the money a company raises from bonds has fewer strings attached than bank loans. A possible disadvantage could be if for any reason this person cannot pay the bondholders their interest payments, they can force her or him into bankruptcy.

Worry Wealth Guide To Stock Market Chapter 2: What are Capital Market & Why are they so important? Options available for entrepreneurs people: The second way: issue stock. The person will get money from investors and give up some of her or him ownership, but as the company grows, so will him/her portion. If the company becomes really successful, then the stock will become very popular and go up in price.