Page 479 - Business Principles and Management

Unit 5

the exchange. The NYSE attracts more traditional companies. Most stock
exchanges handle stocks, bonds, and other types of investments. Mergers and
partnerships among stock exchanges continue to evolve as electronic trading
grows worldwide.
A stock index is a kind of average of the prices of selected stocks considered to
be representative of a certain class of stocks or of the economy in general. Investors
watch the movement of the indexes to get a sense of stock market trends for those
types of stocks and for the overall growth of the economy. The most well-known
indexes in the United States are the Dow Jones Industrial Average Index, the NAS-
DAQ Market Index, and Standard & Poor’s 500 Index. When compared over
time, each index provides investors with a picture of what is happening in this
nation’s and the world’s financial markets. An index trend of rising share prices
may influence investors to buy more shares, and a downward trend may prompt
them to sell some shares. Unfortunately, predicting when the market will reach its
low and high points is nearly impossible, even for the most skilled investors.

CHECKPOINT
Identify three important goals that can guide investment
decisions.

17.3 Assessment

UNDERSTAND MANAGEMENT CONCEPTS
Determine the best answer for each of the following questions.
1. Treasury instruments are considered low-risk investments because
they
a. are issued in very small denominations
b. cannot be traded
c. are backed by the U.S. government
d. none of the above
2. When money is spread among many types of investments, the
investor has
a. increased the risk
b. emphasized growth
c. reduced the initial cost
d. diversified the investments
THINK CRITICALLY
Answer the following questions as completely as possible.
3. If you had $10,000 to invest, what would you consider the most
important factors in choosing among the various investment
instruments?
4. Why should investors watch the performance of stock indexes over
an extended period of time rather than reacting
to daily increases or decreases?

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