Investing For Dummies, 7th Edition

Chapter 4

The Workings of Stock and Bond Markets

In This Chapter

Going from a private to public company

Looking at the workings of the stock and bond markets and the economy

Deciphering interest rates, inflation, and the Federal Reserve

To buy and enjoy using a computer or cellphone, you don’t need to know the intricacies of how it’s put together and how it works. The same holds true for investing in stocks and bonds. However, spending some time understanding how and why the financial markets function may make you more comfortable with investing and make you a better investor.

In this chapter, I explain the ways that companies raise capital, and I give you a brief primer on financial markets and economics so you can understand and be comfortable with investing in the financial markets.

How Companies Raise Money through the Financial Markets

All businesses start small — whether they begin in a garage, a spare bedroom, or a rented office. As companies begin to grow, they often need more money (known as capital in the financial world) to expand and afford their growing needs, such as hiring more employees, buying computer systems, and purchasing other equipment. Many smaller companies ...