This gave birth to share capital, which can combine financial resources of many people into a pool for starting a big project.
The most visible representatives of share capital are public limited companies, such as British Petroleum, Royal Dutch Shell or General Motors. They raise money on the stock market by issuing securities, mostly shares and bonds.
Ordinary shares (common stock in USA) form the largest part of the whole securities market. A shareholder owning ordinary shares can vote at the annual shareholders meeting, which reviews the companys reports, takes decisions on the companys plans and the distribution of the companys profit. The meeting may decide to distribute the dividends to the shareholders or to reinvest the profit. If the company has no profit or has losses, the owner of ordinary shares will receive no dividends.
Each ordinary share has its face value and its market price. The face value is indicated on the share certificate but one cannot sell or buy the share at the face value. The market price is established at the stock exchange, where the shares are quoted and traded. The market price may be several times higher or lower than the face value because it depends on the general market situation and on the performance of the company.
When the countrys economy grows, the stock market usually has an upward trend, the market prices of shares go up and the stock exchange traders say that the market is “bullish”. If the market has a downward trend, the market prices of shares go down and the market becomes “bearish”.
Many companies issue preference shares (preferred stock in USA). These shares give the shareholder a guaranteed, stable income fixed as a percentage of their face value. But preference shares do not let their owner to vote at the shareholders meetings.
Some companies issue bonds. These securities provide their owner with stable income, the same as preference shares do. But unlike ordinary or preference shares, bonds are redeemable. It means that the company issuing bonds has an obligation to redeem them or buy them back at the face value after a certain period of time, usually after several years.
There was a stock market boom during the latest decade of the twentieth century. Many people became active in shopping for financial products and invested much of their wealth in securities. They expected that the markets would grow rapidly in the coming years and hoped to earn money through buying securities at lower prices and selling them at higher prices.
But these expectations were ruined by a sudden economic crisis. Now the Western economies have been in recession for about two years and the market price of most securities is much lower than their face value. It is a very sad situation for the shareholders, because they cannot return their shares to the issuing companies and get their money back. They can only sell these shares at their market price, if somebody will buy them.
In the conclusion I want to tell, that the knowledge of the basic economic principles creates conditions of safe existence for the person. The public phenomena, which are studied with the economic theory, influence various layers of the population. The size of the received income plays an important role in the position of the person in the society.
Certainly, I cannot say that if you study the basic economic principles, you will understand all essence of economic events.
I hope that my work will help the beginning businessmen in the future.
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- Osipov J.M. Bases of enterprise activity. Moscow, 1992.
- Bulatov A.S. The economic theory (2 edition). Moscow, 1997