Primary and Secondary Markets BF 2.3 The stock market is an institution enabling people who want to buy shares of stock to buy them from people who want to sell shares of stock. This market matches buyers and sellers and provides the means for mutual agreement on price. That is, the price of a share of stock is set at the moment when a buyer and seller agree to make a trade, and not before. The stock market is more than a physical location (and need not be a physical location at all); it is a set of arrangements, advertisements, online transactions, computer listings and personal relationships that make it possible for stocks to be traded. Although often referred to as if it were a single entity, "the stock market" is actually a number of different markets. The three major stock markets in the U.S. are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the NASDAQ Stock Market (although there are many other smaller stock markets). The diagram below shows how the stock markets are organized. Questions for Discussion (Answers should be 50 words each!!!) Based on your knowledge of markets and a quick review of BF 2.3, answer the following questions. 1. Why is the primary market of stocks important to our economy? 2. Why is the secondary market of stocks important to our economy? 3. Why is the secondary market of stocks important to buyers and sellers – individual investors. 4. How is a stock exchange different from the Nasdaq stock market? Please write or type your responses on separate sheets and attach to this sheet. Make sure your responses are thoughtful and complete (again, 50 words each). Financial Institutions in the U.S. Economy In a market economy, financial institutions channel savings into investments. The process of channeling funds from one group of people to others is important to the overall economy. Banks provide a place for individuals to keep checking and savings accounts, and borrowers go to banks to obtain loans. Some people use loans to start or expand businesses or to invest in new factories and machines. Some use loans to purchase homes and expensive durable goods. Other specialized financial institutions, such as stock and bond markets, also play an important role in promoting investment. QUESTIONS BASED ON THE ACTIVITY 1. What is a financial institution? Give an example. 2. What is the difference between personal investment and economic investment? 3. What is the difference between stocks and bonds? 4. What is the primary market for stocks or bonds? 5. What is the secondary market for stocks or bonds? 6. When corporations issue stocks, why is it called equity financing? 7. When corporations issue bonds, why is it called debt financing? 8. Why do companies SELL stocks and bonds? 9. Why do investors BUY stocks and bonds? .