Thomas Shogren, Chapter 7, Question #7

After reading chapter seven I have learned that financial markets are not complex as they appear at first. The first time I saw all the numbers of the stock market I was perplexed by how people use all these seemingly random numbers to make money. The author explains the four needs for financial markets and the four basic rules that good investments follow. The four needs for financial markets are raising capital, storing, protecting, and making profitable use of extra capital, insuring against risk, and speculation. The speculation of price movements causes people to insure against the risk that they will lose their money, and raising capital will create extra capital which is used to make profit. The four basic rulles that good investments follow are saving and investing, taking risk in order to earn a reward, diversity of investments, and investing for the long run. People should save their money and invest it in order to make profit. However the profit always has a risk with it. People should also have long term investments in a variety of different investments instead of short term investments.