DIRECTIONS:  Okay... to pass this part of the stock broker exam, you will need to know the answer for each of the following questions that will show up on the exam this week. 

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tock trading in the United States can be traced back to over 200 years ago. At that time, the American Revolution had started and the needs for funds were great. It was decided that one way to get money would be to sell war bonds.  Citizens were urged to purchase these bonds which were pieces of paper stating they could get paid back later in time. In turn our Colonial army got uniforms, food, and ammunition.  Companies caught on to this quick way of raising money and before long began issuing stock shares that could be traded with others.  Where bonds had a fixed guarantee of a small profit, stocks were much more speculative and had a greater risk for

In a simple voice, what are stocks?

bigger profits or losses.  What exactly are stocks?  Stocks are considered a collection of shares (like pie slices) in a company; hence this is where the name stock shares came from. A stock is a certificate (piece of paper) stating you own a small fraction of that company (corporation). A corporation is a company that divides its self into individual share to allow for multiple owners.  Owning a small portion of a company that has good success makes the value of your share increase in price.  However when a company does poorly, the stock price normally decreases in price. 

1. How far back can stock trading be traced?             
2. What are stocks?
   
   Companies issues stocks so they can raise money to help their company grow without taking out a costly loan that has to be paid back.  A company might use their stock sale money to hire new employees, build a new building, or conduct research for new products and services.
    
3. Companies raise money by selling stock but what do they use that money for?
   
   Investors who risked their money to buy (stock) shares of a company found it a great investment.  For example, as companies prospered their stock value went up.  This made sense to small investors since Stocks are relatively inexpensive compared to starting their own company or purchasing other investments like precious metals, real-estate, or collectables.

   all Street from the beginning was this country's center for finance. For it was in 1792 that twenty-four merchants signed an agreement that started the New York Stock Exchange (NYSE) and with that they agreed to meet everyday under a buttonwood tree on Wall Street to trade stocks and bonds. This later became known securities trading.  Today the NYSE is the largest stock exchange with billions of dollars being traded daily on this exchange.  Most of the this country's top companies are traded on the NYSE.
    

4. Why is Wall Street thought of as the center of finance?
5. Describe the NYSE?
   
   here are thousands of sites devoted to learning and understanding stocks.  One way to make looking up stock prices easier and more convenient is that company stocks are represented with a symbol.  For example, Nike's stock symbol is NKE and Wal-Mart's is WMT.  The reason for symbols is to make trading more accurate and

   Why invest your money?

    convenient when one wants to purchase or research a particular company stock.

   he New York Stock Exchange (NYSE) is not the only stock exchange in this country. Even though the NYSE is the biggest and best know stock exchange, there are many more. There are stock exchanges in Chicago, Los Angeles, San Francisco, Boston, Philadelphia, and Cincinnati.  Stocks are only traded at exchanges to ensure the safe and secure trade of stocks.  Fraud often threatens the security and life of an organization and due to the importance of stock trading to the US and world economy, every effort is made to ensure the accuracy of a trade.  Approximately 2,500 of the largest companies are traded on NYSE however over 5,000 companies are traded on an exchange called the National Association of Securities Dealers Automated Quotations (NASDAQ).  NASDAQ is a computer automated trading system unlike the NYSE which uses people to help make the trades.  With NASDAQ, a computer does most of the work for NASDAQ trades. 
    

6. Why does the stock market use symbols to represent companies?
7. Name two other cities with stock exchanges besides New York?
8. Why is that you must buy and sell stocks only at a stock market (exchange)?              
9. What is NASDAQ and how does it differ with NYSE?
   
   ealthy individuals were the first to catch on to trading stocks. However, what the regular person came to realize was that stocks were a good investment over time and much less expensive than owning land or a second house. Also, what these investors knew was that their money was being put to good use. The company shares they purchased today would help a company grow stronger and one day would be worth more than what they paid. As stated before, a stock share is a small fraction of a company. However when you buy a stock share, you are actually helping to pay for a small percentage or part of everything that the company owns like buildings, chairs, computers, etc.  All together when a company "goes public" and sales shares in their company they can reap billions of cash to reinvest in their company.  Extra money a company gets from a stock sell helps them grow, do research, and/or promote their company.

   ike any good business person, you hope to buy at a low price for a stock and then later sell that same stock for a higher price, and thus profit from your investments.  So how are the prices of stocks determined?  The price is determined by what someone will pay for the stock.  For example, if the company makes mistakes and/or bad decisions that get reported or are reflected in their financial report, the stock is likely to fall in price since many people who find this information out will then sell the stock.  As lots of people try to sell, the price continues to drop since there is a large supply to sell but few buyers (low demand) who want the stock.  The price just continues to drop until others take the risk and buy what you do not want.  This is how the price is determined.  Basically stock prices drop when there is a large supply of sellers and a low demand of buyers.  The opposite is true however when there is a huge demand for a stock but few sellers (low supply) who want to sell the stock.  Many people purchased Google at $85.00 years ago and even though it is selling for much higher now, it is seen as a very good stock and there are few who want to sell it. This low supply of sellers and a high demand causes the stock price to rise.  EBay works this way.  Lots of bids cause the price to rise.  Little interest can cause the seller to drop their price.
    

10. When there is a low supply of a particular stock to buy but a high demand will the price of that stock rise or fall?
11. Why is an investor's goals to buy low and sell high?
12. When lots of people begin to sell the same stock but few buyers the price goes down, why?  Can you think of a time in history that this occurred?
13. Explain supply and demand and how a high demand increases stock prices.
14. Make a comparison between an auction and buying or selling of stocks.  How is it similar?
     

    he selling of stock is done by a stock broker. These are the people who are authorized to send request to the stock market to buy and sell on your (shareholder's) behalf. For their services they are paid a commission. When the stock market as a whole is rising in value then it is referred to as a Bull Market. But when the market as a whole is losing value and prices are falling the market is said to be in a Bear Market. Historically the stock market has show investors a positive return in almost all 10 – 20 years periods. It is has proven for million of investors to be a wise investment for a long term investment plan.
     

15. What is the role of a stock broker and what is their pay called?
     
16. What is Bull and Bear Market?

    wo indicators of how the stock market as a whole is doing are called the DOW and the S & P 500.  Both of these indexes or samplings of the market help the average investor to see how the markets are doing short term.  The DOW is a listing of the 30 largest companies in their respective industry.  For example, Coca-Cola is listed on the Dow while Pepsi is not.  Wal-Mart is on the Dow while Target is not.  So when you hear the DOW is down, the entire market may not be doing bad but on average the top 30 company's stock are falling in price.  These 30 companies represent only a little over 1% of the entire market.  So to better gauge how the entire market is doing, there is the S & P 500.  This stands for the Standard and Poor 500 or the top 500 companies listed on the NYSE.  The S & P 500 represents 20% of the NYSE.  This index includes both Coco-Cola and Pepsi.  It would include also both Wal-Mart and Target.   
     

17. Explain the Dow and S&P 500.
    
    Finally, the common investor like you and I can not afford to invest in a second home but instead uses their savings each month to buy stocks or groups of stocks called mutual funds.  From this companies win and investors win when the stocks grow in value as the company makes new products for consumers and creates new jobs for people like ourselves.  The risky part is that there are no guarantees which stocks will rise and which will fall.  Our hope is that we have picked a stable well ran company.  But in the end no one knows for sure.
     
18. Compare investing in stocks to investing in real estate?
19. How does the stock market help our economy to grow?
20. What makes owning a stock risky?