Wednesday, March 21, 2007

The Stock Market simply illustrated

Once upon a time in a village, a man appeared and announced to thevillagers that he would buy monkeys for Rs10. The villagers seeing thatthere were many monkeys around, went out to the forest and started catching them.
The man bought thousands at Rs10 and as supply started to diminish, thevillagers stopped their effort. He further announced that he would nowbuy at Rs20. This renewed the efforts of the villagers and they startedcatching monkeys again. Soon the supply diminished even further andpeople started going back to their farms.
The offer rate increased to Rs25 and the supply of monkeys became solittle that it was an effort to even see a monkey let alone catch it.
The man now announced that he would buy monkeys at Rs50! However, sincehe had to go to the city on some business, his assistant would now buyon behalf of him.In the absence of the man, the assistant told the villagers. "Look atall these monkeys in the big cage that the man has collected. I willsell them to you at Rs35 and when the man returns from the city, you cansell it to him for Rs50."
The villagers squeezed up with all their savings to buy the monkeys.Then they never saw the man nor his assistant, only monkeys everywhere!!

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