MONEY, BANKS AND THE STOCK EXCHANGE

MONEY, BANKS AND THE STOCK EXCHANGE

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STOCK EXCHANGE

A stock market is a platform for the trade of securities containing shares in businesses supported by some company, organization, or community of persons. A stock market offers two basic assets across a trading network.

First of all, it gives a platform for product acquisitions and sales. Secondly, it provides a way to monitor the stock portfolio value.

 

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Issuing Stock

The term Inventory is the definition of the money received by an equity fund or a joint-stock partnership or a government.
Joint-stock firms offer permanent capital assets to collect money. Shares must never be refunded.

The individuals and organizations, who purchase securities, are joint-stock business owners or shareholders.

Each company share entitles its owner to a share in the profit of a company. This income distribution is regarded as a dividend.

A government purchases credit stocks or shares, often for 25 years or more, to collect funds for a set term. At the end of their term, bonds are paid back with interest.

 

Why the Stock Market Is Important?

There would be far fewer stocks and shares exchanged if the individuals and organizations that purchased them could not sell them to other investors at a future time to recover their capital.

Unable to sell newly issued shares and stocks, governments and businesses would not be able to raise the money they need to fund their operations.

Economic activity would be reduced. There would be a reduced output of goods and services.

 

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Importance of Money in Economics

Money is an economic unit that acts as a well-known trade exchange medium in an economy.

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Money provides a purchase cost avoidance method, namely the simultaneous correlation of preferences. The money comes as a commodity, which has a physical property to be taken as a means of exchange by the market participants.

 

FUNCTIONS OF MONEY

Because of its usage as an economic medium in both purchases and selling and its ability to assign costs of all sorts of other products and services, money may be used to measure the cash obtained or lost in many transactions and to mathematically compare the cash amounts in multiple variations in varying quantities of various goods and services.

As money is inherently a means to store value obtained through current production or trading for future use in other products or services, it is a means to use money as a means of exchange for transactions in the future.

As far as money is taken as a general medium of exchange and acts as a useful store of value, it can be used to transfer value for exchange between individuals at different times through credit and debt instruments.

Over some time, one person may lend a quantity of cash to another and payback that negotiated sum in the future.

In return for a negotiated amount of deposited money, the surplus interest indicated by the loaned money shall be passed from the loaner to the borrower.

 

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Why do we need Money?

To share products and services, we need and want each other, but cannot create for ourselves, because
We are not self-sufficient (everything we need and desire cannot be made, for ourselves)
We specialize in these roles and successful practices and thus need to interact with other product producers.

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Money Borrowing

The rate of interest is the cost of loans.

The loan of money for persons and firms involves administrative and non-repayment costs. Banks have to bear the risk of generating a profit.

The longer the duration of the loan, the higher the interest rate paid, and the greater the chance of non-repayment.
Interest rates reimburse banks for market inflation, which reduces the profitability of their loans.

 

Example

A small firm borrows $20,000 repayable in one year.

Interest rate $5 per year

Total repayable at the end of the year = $21,000.

 

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Role of Central Bank

For most countries, the central bank is central to the financial structure.

The central bank’s key function is to preserve national currency stability and the supply of money.

Issues of coins and notes

Controls state debt

manages the government’s payments

Manages the gold and foreign reserves of the nation

Works for monetary policy of the government

 

 

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