Re: What is stock exchange & stocks?
I'm no economist but I'll take a shot. A stock exchange is a market. In economics, a market is anywhere that a buyer and seller can exchange goods or services.
A stock is like a piece of a company. If you buy one stock of a company that has 10,000 stocks, technically you're 1/10,000 th of an owner of that company. Stocks are traded at a stock exchange, which as mentioned above is a market (a place to buy and sell stuff).
A stock exchange reports, among other things, the value of a company's stock. The more a company is worth, the more a piece of ownership of that company is worth. For example, some companies' stocks trade around $10 (each stock, or piece of ownership, is worth $10) while others can trade for over $100,000 per stock. The value of a stock is dependent on a lot of factors.
World events affect stocks because they can affect how well companies (whose stocks are traded on an exchange) can do business. As an example, after 9/11, the stocks of airline companies fell. Obviously a bit of this was speculation on the part of people who trade stocks, but they hypothesized that after the attacks, people will be reluctant to fly on planes and they all had the following train of thought:
Fewer people flying means that airlines will do less business, meaning they will make less money. Planes will also not be allowed to fly for a while so the company is going to lose money because of not operating for however long flights are grounded. If the airline companies make less money, they are worth less than before. Therefore, I should sell this stock because the value of this company is going to go down. The problem is that a lot of people who owned airlines' stock had this train of thought and they all sold their stock at once, which caused the stocks of airline companies to fall. Thus, 9/11 caused the stocks of airline companies to fall.
In economics, if there is a lot of something available, then it is worth less. A diamond is worth more than a rock because there are a lot more rocks in the world than diamonds.
I tried to explain as best I could. My own knowledge on this matter is not that of an expert so if anyone spots mistakes in my explanations please feel free to correct me.
