Every country has a stock exchange; the most popular ones are NASDAQ of the US, FTSE of the UK, BOVESPA of Brazil, etc. Economy of a country and the stock market go hand in hand in determining how strong the country is economical. For instance, all the major stock markets have gone down due to recession and the same reflects the economic structure of the world at present. Major companies in the US and the UK like Northern Rock, AIG etc have collapsed and the same reflects how strong the world economy is at this moment. This paper will examine the economy of a country affects the stock market of that particular country. A comprehensive analysis of all the necessary information required to understand the concept will be provided in this paper.
“The Stock Exchange, “share market” or a “bourse” is a mutual organization for traders or “stockbrokers” who trade in different company securities and stocks. Companies or businesses have to be “listed” in the bourses in order for any trading or exchange in their “shares” or equities to be carried out. Stock markets are also the place for trading in unit trusts and bonds issued by the government.” (Stock Market Economy).
“With plummeting share prices making headline news, it is worth considering the impact of the Stock market on the economy. How much should we worry when share prices fall? How does it impact the average consumer? And how does it affect the economy?” (How Does the Stock Market Affect The Economy?). People buy shares of various listed companies in the stock market and if the price of the shares falls, the people suffer from losses and if this continues for a long time they will be lifted with no money to spend on luxuries and other wishes that they have, this will result in less circulation of money in a country and the country will inevitably suffer bad economic time. The retired personnel who get their pension will be hugely affected if the stock market falls, the pension fund is largely invested in the stock market and if the market falls, the senior citizens will get no pension. This also applies to various banks and other financial institutions, banks invest chunks of money in the stock market and if the market falls, the banks will be left with no money and this will upset the economic cycle in a country.
“Many assume that the stock market represents the state of the economy. That is the primary reason for this distorted obsession with the market. There are several factually incorrect assumptions about the role of the market.” (Stock market: Barometer of economy?). The movement in the shares gives a good indication of how strong the economy of a country is? The recent recession has brought the market down to unprecedented levels and it is classic example of the connection between the stock market and the economy of a country. The paper discussed the connection between the economy of a country and the stock market, a comprehensive analysis of how things move has been provided in the paper.
References
How Does the Stock Market Affect The Economy? In Economic Help. 2009. Web.
Stock Market Economy. In Economy Watch. 2009. Web.
Stock market: Barometer of economy? In Business Line. 2009. Web.