C H A P T E R 2 5
S AV I N G , I N V E S T M E N T, A N D T H E F I N A N C I A L S Y S T E M
5 5 7
B a n k s
If the owner of a small grocery store wants to finance an expansion of his business,
he probably takes a strategy quite different from Intel. Unlike Intel,
a small grocer
Most daily newspapers include
stock tables, which contain in-
formation about recent trading
in the stocks of several thou-
sand companies. Here is the
kind of information these ta-
bles usually provide:
◆
Price.
The single most im-
por tant piece of informa-
tion
about a stock is the
price of a share. The
newspaper usually pre-
sents several prices. The
“last” or “closing” price is the price of the last trans-
action that occurred before the stock exchange closed
the previous day. Many newspapers also give the “high”
and “low” prices over the past day of trading and,
sometimes, over the past year as well.
◆
Volume.
Most newspapers present the number of
shares sold during the past day of trading. This figure is
called the
daily volume.
◆
Dividend.
Corporations pay out some of their profits to
their stockholders; this amount is called the
dividend.
(Profits not paid out are called
retained earnings
and
are used by the corporation for additional investment.)
Newspapers often report the dividend paid over the pre-
vious year for each share of stock. They sometimes
repor t the
dividend yield,
which
is the dividend ex-
pressed as a percentage of the stock’s price.
◆
Price-earnings ratio.
A corporation’s earnings, or profit,
is the amount of revenue it receives for the sale of its
products minus its costs of production as measured by
its accountants. Earnings per share is the company’s
total earnings divided by the number of shares of stock
outstanding. Companies use some of their earnings to
pay dividends to stockholders; the rest is kept in the
firm to make new investments. The price–earnings
ratio, often called the P/E, is the price of a corpora-
tion’s stock divided by the amount the corporation
earned per share over the past year.
Historically, the
typical price–earnings ratio is about 15. A higher P/E in-
dicates that a corporation’s stock is expensive relative
to its recent earnings; this might indicate either that
people expect earnings to rise in the future or that the
stock is over valued. Conversely, a lower P/E indicates
that a corporation’s stock is cheap relative to its recent
earnings; this might indicate either that people expect
earnings to fall or that the stock is under valued.
Why does the newspaper repor t all these data ever y day?
Many people who invest their savings in stock follow these
numbers closely when deciding which stocks to buy and sell.
By contrast, other stockholders follow a buy-and-hold strat-
egy: They buy the stock of well-run companies, hold it for
long periods of time, and do not respond to the daily fluctu-
ations repor ted in the paper.
Name of
company
Symbol for
company’s stock
52 Weeks
Hi
Lo
Stock
Sym
Div
Yld
%
PE
Vol
100s
Hi
Lo
Close
Net
Chg
26
3
/
16
12
7
/
8
75
7
/
16
22
1
/
2
23
7
/
16
6
7
/
8
47
5
/
16
9
3
/
4
CslFnl
Coastcast
CocaCola
CCFemsa ADR
TOPrS
PAR
KO
KOF
2.09
.64
.12e
8.6
...
1.3
.9
...
17
40
...
59
171
39384
2121
24
1
/
4
11
3
/
8
51
13
13
/
16
23
13
/
16
10
7
/
8
49
3
/
4
12
7
/
8
24
1
/
4
11
3
/
8
51
13
3
/
4
+
1
/
16
+
3
/
8
+ 1
1
/
16
+
1
/
16
Dividend
amount
Dividend
yield
Price–
earnings
ratio
Trading
volume over
the previous day
Highest and
lowest price over
the previous day
Last price at which
the
stock traded
Change in
closing price
from the
day before
Highest and lowest
price of the stock
over the past year
F Y I
How to Read
the Newspaper’s
Stock Tables
5 5 8
PA R T N I N E
T H E R E A L E C O N O M Y I N T H E L O N G R U N
would find it difficult to raise funds in the bond and stock markets. Most buyers of
stocks and bonds prefer to buy those issued by larger, more familiar companies.
The small grocer, therefore, most likely finances his business expansion with a loan
from a local bank.
Banks are the financial intermediaries with which people are most familiar. A
primary job of banks is to take in deposits from people who want to save and use
these deposits to make loans to people who want to borrow. Banks pay depositors
interest on their deposits and charge borrowers slightly higher interest on their
loans. The difference between these rates of interest covers the banks’ costs and re-
turns some profit to the owners of the banks.
Besides being financial intermediaries, banks play a second important role in
the economy: They facilitate purchases of goods and services by allowing people
to write checks against their deposits. In other words, banks help create a special
asset that people can use as a
medium of exchange.
A medium of exchange is an item
that people can easily use to engage in transactions. A bank’s role in providing a
medium of exchange distinguishes it from many other financial institutions.
Stocks and bonds, like bank deposits, are a possible
store of value
for the wealth that
people have accumulated in past saving, but access to this wealth is not as easy,
cheap, and immediate as just writing a check. For now,
we ignore this second
role of banks, but we will return to it when we discuss the monetary system in
Chapter 27.
M u t u a l F u n d s
A financial intermediary of increasing importance in the U.S.
economy is the mutual fund. A
Do'stlaringiz bilan baham: 
