The Wall Street Journal Guide to Understanding Money and Investing - Softcover

Kenneth M. Morris; Alan M. Siegel

Softcover

ISBN 10: 067189451X ISBN 13: 9780671894511

Publisher: Lightbulb Press / Fireside, 1993

Synopsis

The Wall Street Journal Guide to Understanding Money & Investing initiates you into the mysteries of the financial pages -- buying stocks, bonds, mutual funds, futures and options, spotting trends and evaluating companies. For those who are curious but intimidated by everyday financial jargon, this guide offers a literate, forthright and lively alternative.

About this title

From the Back Cover

An easy-to-understand, easy-to-use primer that helps take the mystery out of:

--Money
--Indexes
--Treasury Bills
--Stocks
--Commodities
--Options
--Bonds
--Futures
--Mutual Funds
--Inflation

The Wall Street Journal Guide to Understanding Money & Investing initiates you into the mysteries of the financial pages--buying stocks, bonds, mutual funds, futures and options, spotting trends and evaluating companies. For those who are curious but intimidated by everyday financial jargon, this guide offers a literary, forthright and lively alternative.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter 1

MONEY

The History of Money

Most money doesn't have any value of its own. It's worth what it can buy at any given time.

The history of money begins with people learning to trade the things they had for the things they wanted. If they wanted an ax, they had to find someone who had one and was willing to exchange it for something of theirs. The system works the same way today, with one variation: now we can give the seller money in exchange for the item we want, and the seller can use the money to buy something else.

IN THE BEGINNING WAS BARTER

Our earliest ancestors were self-sufficient, providing their own food, clothing and shelter from their surroundings. There was rarely anything extra -- and nothing much to trade it for.

But as tribes and communities formed, hunting and gathering became more efficient; occasionally there were surpluses of one commodity or another. A tribe with extra animal skins but not enough grain could exchange its surplus with another tribe that had plenty of food but no skins. Barter was born.

As societies grew more complex, barter flourished. The most famous example may be Peter Minuit's swap in 1626 of $24 in beads and trinkets for the island of Manhattan. Its property value in 1993 was assessed at $50.4 billion.

BARTER IS NO BARGAIN

It takes time and energy to find someone with exactly what you want who's also willing to take what you have to offer. And it isn't always easy to agree on what things are worth. How many skins is a basket of grain worth? What happens if the plow you want is worth a cow and a half?

The value of bartered or exchanged goods depends on availability. In Rome, soldiers were often paid with sacks of salt -- that's where the word salary comes from -- because salt was scarce, and they needed it to preserve their food.

In Europe in 1393, when imported spices were highly prized and often rare, a pound of saffron was worth a plow horse. A pound of ginger would buy a sheep. (Today ginger is $2 a pound, but a pound of saffron costs around $3,000.)

MONEY FILLS THE BILL

As trade flourished, money came into use. Buyers and sellers agreed on a system to establish worth and what was acceptable as a means of payment. The term currency, another word for money, means anything that's actually used as a way of paying your bills. In the ancient world, cattle was one of the basic forms of currency.

FOUR BITS

For small change, American colonists often cut up coins to make change on the spot. A half coin was four bits, and a quarter coin was two bits.

METAL BECOMES THE STANDARD

As early as 2,500 BC various precious metals -- gold, silver and copper -- were used to pay for goods and services in Egypt and Asia Minor. By 700 Bc The kingdom of Lydia was minting coins made of electrum, a pale yellow alloy of gold and silver. The coins were valuable, durable and portable. Better yet, they couldn't die or rot on the way to market. In addition, using coins permitted payments by tale, or counting out the right amount, rather than weighing it. That simplified the exchange process even more. For a long time, the relative value of currencies was measured against precious metals, usually gold or silver. That's where terms like pound sterling and gold standard originated. In modern times, though, national economies have moved away from basing their currency on metal reserves. Gold hasn't been a universal yardstick since 1971, when developed countries stopped redeeming their paper currency for gold.

Paper Money

Bills come in different sizes, colors and denominations but their real value is based on the economic strength of the country that issues them.

THE ORIGINS OF PAPER MONEY

Although the idea of paper money can be found in bills and receipts recorded by the Babylonians as early as 2,500 BC, the earliest bills can be traced to China. In 1273, Kubla Khan issued paper notes made of mulberry bark bearing his seal and his treasurers' signatures. The Kwan is the oldest surviving paper money. The currency -- about 8 1/2x11 inches -- was issued in China by the Ming dynasty between 1368 and 1399.

The first European bank notes were printed in Sweden in 1661. The first paper money in the British Empire was in the form of promissory notes given to Massachusetts soldiers in 1690, when their siege of Quebec failed and there was no booty to pay them with. The idea became popular with the other colonies, if not with the soldiers who were paid that way.

Silver dollars weren't minted in the U.S. until 1792 -- so whatever coin George Washington threw across the Potomac as a young man, it wasn't a dollar.

THE U.S. DOLLAR

The American dollar comes from a silver coin called the Joachimsthaler minted in 1518 in the valley (thal) of St. Joachim in Bohemia (Jachymov in Czechoslovakia). The coin was widely circulated, and called the daalder in Holland, the daler in Scandinavia and the dollar in England. At least a dozen countries in addition to the U.S. call their currency dollars.

The U.S. dollar's early history was chaotic until the National Banking Act of 1863 established a uniform currency. Before that, banks used paper money (called scrip), but they couldn't always meet their customers' demands for hard currency (gold or silver coins, or specie). Often the dollar could be exchanged for just a fraction of its stated value.

Dollars were once backed by gold and silver reserves. Until 1963, U.S. bills were called silver certificates. Today they are Federal Reserve notes, backed only by the economic integrity of the U.S. You can't exchange them for specie.

THE UPS AND DOWNS OF PAPER MONEY

Paper money has had its ups and downs because its value changes so quickly with changing economic conditions. When there's lots of money in circulation, prices go up and paper money buys less. That's known as inflation.

For example, during the American Revolution paper money dropped in value from $1 to just 2 1/2¢. In Germany in 1923, you needed 726,000,000 marks to buy what you'd been able to get for I mark in 1918.

MAKING PAPER MONEY

The Bureau of Engraving and Printing prints money at plants in Washington, D.C. and Fort Worth, Texas. The money is printed in large sheets, stacked into piles of 100, and cut into bills that are bundled into bricks for shipping. The engraved plates, which can be used to produce up to three million impressions before they have to be replaced, are designed with intricate patterns of lines and curves to make the money hard to copy. As an added security measure, several different engravers work on each plate.

The Bureau makes the slightly magnetic ink itself from secret formulas. Special paper, made by Crane and Company, has been used for all U.S. currency since 1879.

The content of the paper is a closely guarded secret, although we know the sheets are now about 75% cotton and 25% linen and contain small, faintly colored nylon threads.

You can get back the full value of a torn bill from the Bureau of Engraving and Printing in Washington, DC -- as long as you turn in at least 51% of the ripped one.

The U.S. Dollar

In 1862, the U.S. government issued its first paper money. The bills were called greenbacks because the backs were printed in green ink -- to distinguish them from gold certificates.

Each banknote is identified by a letter symbol in the center of a seal that names the Federal Reserve Bank that issued the bill. On this bill the B indicates New York. So does the number 2, which appears four times. Each of the 12 banks has an identifying letter and number. San Francisco's, for instance, are L and 12. Each Federal Re

Edition details

• Publisher: Lightbulb Press / Fireside
• Publication date: 1993
• ISBN 10: 067189451X
• ISBN 13: 9780671894511
• Binding: Paperback
• Language: English
• Edition number: 1
• Number of pages: 155