The Federal Reserve - Essay Example

As compared to the employment, the self employed or an entrepreneur in general, have to invest some amount, which is said capital, and it is the fate of the self employed that it may succeed or fail, whereas in the employment there is no risk for the investment, as there is no investment required, all the employee has just to do is to fulfill the job requirement and to get a an earning at fixed rate. The amount to be invested in business has risk, as above mentioned, but the business has too much attraction, because it has good returns, and if comparable by the employment, the investor may receive many multiples of the salary in a single period.

A return on money received from the business, that is the profit in general determines the business efficiency. But the question is that, is it necessary to invest money into a company and purchasing the shares? Can’t it be invested in the bank to get the interest income on that? This question has been evaluated in the context of the given topic, and will help in determining the criticalness of various securities in the financial markets. Ordinary shares Ordinary shares are the main source of capital for any public company, the other sources of capital is the debt etc.

Ordinary shares provide the money that the shareholders pay to the company and in return receive the dividend, and the rate of dividend depends on the performance of the company. The stock market is the market of corporate securities, but the corporations may issue stock; it is the stock that provides initial capital for a company and the limited liability is the key factor in the corporate sector (J Richard, 1998). A company with healthy profits will probably go for good dividend yield, whereas the company suffering from loss may not issue dividends to the shareholders.

It should be kept into consideration that the company will only share the profit, and the shareholders are not supposed to compensate on the behalf of the loss of the company. How it generates the economic wealth A person may have en economic role in terms of economics, he may be dependant or independent, he may be a surplus unit or deficit unit. A deficit unit is anyone who has more money than he spends, and hence he can utilize the money to get more money. This money can be given to those who are deficit unit, or those who may need it, which is the function of stock exchanges and the credit unions.

So those who have more money can spend their money into the stock markets and can receive the return on it. This rate of return depends on the performance of the company. When a person receive an income from the shares, that is called the dividend, the person has more to spend, which can be given to deficit units at a certain rate of return, and the deficit unit may start his/her own economic activity, that may be any businesses, but without this extra money given by surplus unit to the deficit unit through purchasing shares or purchasing government securities to the deficit unit, helps the deficit unit to pass some threshold, for the entrepreneur it may be the heavy capital required to start a business, or the government which want the people savings in their reserves which is going to be discussed later.

Since the more economic activity can be generated by this security, economy can developed and the employment rate may increase, and the more the volume of economic activity, the more the taxes are accumulated, which in turn provide good infrastructure to the general