[00:00.00] UNIT 5

[00:29.39]How Does the Stock Exchange Work?

[00:35.13]Integrated Skills Development

[00:40.59]Passage

[00:43.65]The Stockbroker

[00:47.20]Many different kinds of people buy shares of stock in the stock market.

[00:54.05]People who buy shares of stock in a company may make money in two ways.

[01:01.00]They may begin to make money right away.

[01:05.75]Suppose that a person invests in a company,

[01:10.79]and the company makes money.

[01:14.55]The company shares this money with the investor.

[01:19.52]This money that is shared is called a dividend.

[01:25.16]Dividends are usually sent to investors once every three months

[01:31.64]while they own the stock.

[01:35.09]A second way that investors may make money

[01:40.13]is to sell the stock at a higher price

[01:45.17]than the price they paid when they bought it.

[01:49.32]The price of each share of stock goes up if the company does very well.

[01:55.98]It may also go up for many other reasons.

[02:00.95]But when it does go up,

[02:04.71]a person may sell it and make a profit.

[02:09.44]Here is an example of how this process works.

[02:15.18]Mr. and Mrs. Smith want to invest in the stock market.

[02:20.83]They have $1000 to invest.

[02:25.97]They talk to person who can help them to buy a good stock.

[02:31.85]This person is called a stockbroker.

[02:36.71]The broker is licensed to buy and sell stock on the stock market.

[02:44.57]The broker tells Mr. and Mrs. Smith about the Ward Pencil Company.

[02:52.12]This company is making a lot of money by manufacturing pencils.

[02:58.57]It is selling shares of stock

[03:03.04]in order that it can get money to expand.

[03:07.48]The shares cost $5 each.

[03:12.03]The Smiths decide to buy 100 shares of stock in the Ward Pencil Company.

[03:19.97]The broker fills this order, and the Smiths own these 100 shares.

[03:27.33]In three months,

[03:30.29]the Ward Pencil Company issues a dividend of $1 per share.

[03:37.36]The Smiths have 100 shares, so they get a $100 dividend.

[03:44.31]In one year, the company expands.

[03:49.07]The company sells many more pencils.

[03:53.51]The price of the stock goes up to $6 for each share.

[03:59.46]Mr. and Mrs. Smith decide to sell their stock

[04:04.82]in the Ward Pencil Company at $6 a share.

[04:10.70]They get back $600,

[04:14.96]plus all of the money they have received in dividends.

[04:20.10]This is a very good investment.

[04:24.46]The process of investing money in the stock market

[04:29.82]is somewhat more complex than this.

[04:34.55]But for everyone who wants to invest money in the market.

[04:40.29]the process is basically same.

[04:44.73]Almost all stock markets work the same way.

[04:49.99]In each country, of course,

[04:53.64]there are special laws for the stock market,

[04:58.40]to make sure that everyone has a fair chance to make money by investing.

[05:04.77]Investing money in the stock market is a gamble.

[05:09.73]Everyone hopes to make money by investing.

[05:14.70]Companies that need money are glad that many people

[05:20.16]are willing to gamble in order to make money.

[05:24.73]The stock market is a very interesting

[05:29.09]and complex part of the business world.