Financial Intermediaries: Stock Markets

Introduction to Stocks

• Stocks represent shares of ownership in a corporation.
• Traded in organized markets called stock exchanges.

Starbucks Example

• First IPO in 1992, allowing the public to buy shares.
• Owning shares means being part owner and entitled to profits.
  • Profits can be received as dividends.
  • Profits can be reinvested to increase share value.

Investment through Stocks

• Typical buying/selling of existing shares transfers ownership without providing new investment funds to the company.
• New investment happens when new shares are issued at an IPO or later stock issuance.

Importance of IPOs

• Key for encouraging entrepreneurship.
• Raises money to fund big business ventures.
• Provides payoffs to founders and early investors by allowing them to sell shares and diversify.

Comparison: Stock Markets vs Banks

• Stocks involve a bet on company success, hence riskier.
• Stock market investments can lead to varying outcomes (happy or sad savers).
• Banks offer more stable deposit values without risky fluctuations.

Next Steps

• Upcoming topic: the bond market.
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