Explain what the US Trade Deficit is. Why did it go down in December 2007? What does the value of the US dollar have to do with the trade deficit falling? Why do you think that a large trade deficit is bad for the economy? In other words: why is it bad to import more goods than you export?
The U.S. trade deficit sounds like a difficult term to grasp, but it really isn't. When a nation exports and imports goods equally, their trading is balanced. The reason why the word "deficit" follows U.S. trading is because we import goods far more than we export. We would have a surplus if we began exporting more goods than we imported. Simple enough?
Recently, the US has faced a giant deficit when imports began exceeding export by nearly 58 billion dollars! In Dec. of 2007, we exported $144 billion dollars in goods and imported 203 billion dollars in goods! If you can't do the math, that's a 59 billion dollar difference. As a result, the value of the US dollar is falling and foreign buyers are now interested in purchasing more of America's cheap products. This sudden surge is responsible for the increase of expots of US goods overseas.
Naturally, a trade deficit has negative impacts. It would be best for a country to always export more than they import, causing the public to stamp surplus in our trading markets. And of course, surplus is a nice word.
Friday, February 15, 2008
Thursday, February 14, 2008
Opportunity Costs
In your own words, explain what economists mean when they talk about opportunity costs. What are opportunity costs? Give some examples. And give some examples from your own life.
Every choice is an opportunity cost: if you choose one alternative, you'll lost out on another. An economist would throw you the definition: "Opportunity cost is the loss of potential gain from the best alternative to any choice."
If I should go to college after high school, I would be losing $20,000 to tuition. On the otherhand, I can spend those four years working to make $20,000. Likewise, earning a bachelors degree provides the average student with $590,000 in future earnings. There are plenty of alternatives, but the opportunity cost is what we pay to get what we want in exchange for another.
Every choice is an opportunity cost: if you choose one alternative, you'll lost out on another. An economist would throw you the definition: "Opportunity cost is the loss of potential gain from the best alternative to any choice."
If I should go to college after high school, I would be losing $20,000 to tuition. On the otherhand, I can spend those four years working to make $20,000. Likewise, earning a bachelors degree provides the average student with $590,000 in future earnings. There are plenty of alternatives, but the opportunity cost is what we pay to get what we want in exchange for another.
Monday, February 11, 2008
My Investment Strategy
My initial investments were taken from MSN Money's Top Rated Stock Lists. At first, I chose the companies with the catchiest names, naturally. On the second day of the stock market contest, I saw Pedro's portfolio skyrocket, so I basically copied his investment strategy and bought stocks from First Solar. As our portfolio value increased, I saw everyone else jumping on the First Solar (FSLR) bandwagon until all its investors raced their way to the top of the ranking chart.
And so, my strategy from here on out is to invest in five great companies (some blue chip, some not) and stray away from the investments of my classmates. Hopefully, my stocks will go up slowly in value as their portfolios rise and fall together (because of all their similar investments).
And so, my strategy from here on out is to invest in five great companies (some blue chip, some not) and stray away from the investments of my classmates. Hopefully, my stocks will go up slowly in value as their portfolios rise and fall together (because of all their similar investments).
Tuesday, February 5, 2008
Intro. to the Stock Market
1. What exactly is a stock and why do companies sell stock in the first place?
A piece of stock represents partial ownership of a company and so, when someone invests in a certain company, they are buying part of the company. Companies sell stock in order to build interest on invested amounts. With all the money from investors, a company can expand and increase profits. The increased profit benefits all the stockholders who are also partial owners of the company.
2. What is the difference between a public and a private company?
A private company only sells stock amongst its employees, while a public company sells stock to investors all over the world.
3. What is the Dow Jones Industrial Average?
It is the oldest continuing US market index, created to gauge the performance of the industrial component of America's stock markets. The average is made up of 30 of the largest and most widely held public companies in the US.
4. What is a blue chip stock?
The term "blue chip" refers to a stock that is in excellent financial shape and firmly established as a leader in the market. Often referred to as "bellwether issues", these blue chip stocks generally offer dividends and are favorably regarded by investors.
5. What is the New York Stock Exchange and the NASDAQ?
The NYSE and Nasdaq are both stock markets, but are very different in the way that they operate. The NYSE is a place where transactions are taken in a physical place, while the Nasdaq market is located on a telecommunications network, where investments are made electronically. While the Nasdaq exchanges in the dealer's market, wherein investors are not buying and selling from each other but from a dealer, the NYSE exchanges in an auction market, where individuals are typically buying and selling between one another as in an auction. The Nasdaq is also known as a high-tech market, attracting investors within the Internet and electronics. The NYSE is seem as a more well established market that includes many of the blue chip firms and industries.
6. What is a mutual fund?
A mutual fund pools money from investors in the form of cash, bonds and real estate and then the mutual fund company hires money managers to invest this pool of money. In buying a mutual fund, investors will share the profits and losses of the investment portfolio with other investors in the same pool. This mutual fund allows others to invest for you, while spreading out the investment risk (diversification).
7. What are some of the biggest companies on the stock market, how much is their stock?
General Motors - GM - $26.30
Google - GOOG - $504.14
Apple - AAPL - $122.14
Microsoft - MSFT - $28.12
General Electric - GE - $34.23
8. What is the PE ratio of a stock?
It is an indicator for how much a stock is worth. The PE ratio is the price of the stock divided by the earnings per share.
9. What is a stock dividend?
Before I can explain the purpose of a stock dividend, i must first explain what a dividend is. A dividend is a taxable payment declared by a company's board of directors and given to its shareholders out of the company's current profits. This dividend can take the form of a stock dividend, which is paid as additional shares of stock rather than as cash.
A piece of stock represents partial ownership of a company and so, when someone invests in a certain company, they are buying part of the company. Companies sell stock in order to build interest on invested amounts. With all the money from investors, a company can expand and increase profits. The increased profit benefits all the stockholders who are also partial owners of the company.
2. What is the difference between a public and a private company?
A private company only sells stock amongst its employees, while a public company sells stock to investors all over the world.
3. What is the Dow Jones Industrial Average?
It is the oldest continuing US market index, created to gauge the performance of the industrial component of America's stock markets. The average is made up of 30 of the largest and most widely held public companies in the US.
4. What is a blue chip stock?
The term "blue chip" refers to a stock that is in excellent financial shape and firmly established as a leader in the market. Often referred to as "bellwether issues", these blue chip stocks generally offer dividends and are favorably regarded by investors.
5. What is the New York Stock Exchange and the NASDAQ?
The NYSE and Nasdaq are both stock markets, but are very different in the way that they operate. The NYSE is a place where transactions are taken in a physical place, while the Nasdaq market is located on a telecommunications network, where investments are made electronically. While the Nasdaq exchanges in the dealer's market, wherein investors are not buying and selling from each other but from a dealer, the NYSE exchanges in an auction market, where individuals are typically buying and selling between one another as in an auction. The Nasdaq is also known as a high-tech market, attracting investors within the Internet and electronics. The NYSE is seem as a more well established market that includes many of the blue chip firms and industries.
6. What is a mutual fund?
A mutual fund pools money from investors in the form of cash, bonds and real estate and then the mutual fund company hires money managers to invest this pool of money. In buying a mutual fund, investors will share the profits and losses of the investment portfolio with other investors in the same pool. This mutual fund allows others to invest for you, while spreading out the investment risk (diversification).
7. What are some of the biggest companies on the stock market, how much is their stock?
General Motors - GM - $26.30
Google - GOOG - $504.14
Apple - AAPL - $122.14
Microsoft - MSFT - $28.12
General Electric - GE - $34.23
8. What is the PE ratio of a stock?
It is an indicator for how much a stock is worth. The PE ratio is the price of the stock divided by the earnings per share.
9. What is a stock dividend?
Before I can explain the purpose of a stock dividend, i must first explain what a dividend is. A dividend is a taxable payment declared by a company's board of directors and given to its shareholders out of the company's current profits. This dividend can take the form of a stock dividend, which is paid as additional shares of stock rather than as cash.
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