1. Financial Institutions in the U.S. Economy
Suppose Karim decides to use $4,000 currently held as savings to make a financial investment. One method of making a financial investment is the purchase of stock or bonds from a private company.
Suppose Arcadia, a biomedical research firm, is selling stocks to raise money for a new lab. This practice is called finance. Buying a share of Arcadia stock would give Karim ownership in the firm. In the event that Arcadia runs into financial difficulty, shareholders will be paid first.
Suppose Karim chooses to buy 250 shares of Arcadia stock. Which of the following statements are correct? Check all that apply.
- Arcadia earns revenue when Karim purchases 250 shares, even if he purchases them from an existing shareholder.
- An increase in the perceived profitability of Arcadia will likely cause the value of Karim's shares to rise.
- The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Arcadia stock.
Alternatively, Karim could undertake their financial investment by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matures 10 years from now most likely pays a lower interest rate than a U.S. government bond that matures 30 years from now.
