investing 101

The Fed exercises control over money and financial markets using a limited range of indirect tools: open market operations, discount rates, reserve requirements, and margin requirements. Open market operations – consisting of the buying or selling of US government securities, usually on a short-term temporary basis, to either reduce or increase the amount of free cash in the system – are the most frequently used means of fine-tuning financial activity. (The sale of securities reduces cash in the system while the purchase of securities adds actual cash to the system, allowing banks to fund loans.) Most such transactions are conducted through repurchase agreements, which are agreements to buy and then resell securities over a specified period, often as short as overnight.[Bureau of Public Debt]
Common Stocks Common stocks constitute the majority of equity securities. These instruments represent a comparative share of ownership of the net assets of the corporation. Common stocks may or may not pay cash dividends, which are usually based on the level of profits. US corporations usually declare and pay dividends quarterly on a regular schedule, although they may declare special dividends at other times. Dividends may also be declared in additional shares of stock. Common stock carries with it limited liability, because shareholders cannot lose more than the value of their investment and are not liable for excess debt, losses, or judgments against the corporation. Common stock may be issued with a par value or with no par, or base, value; as a practical matter, this issue is of no concern to the shareholder.
In general, common stock is freely transferable and can be bought by anyone and sold to any willing buyer. Some stock issued or used for special purposes is known as restricted stock, which cannot be sold or otherwise t…


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