The land market, as an illustration: The total stock of land is Qf. Whatever the price, this total stock cannot be changed (aside from minor changes like draining lakes etc.) The sellers are signalling a negative demand for the thing (land in this case) - the offer curve (Oc) - the higher the price, the greater the quantity we might expect present owners to be willing to sell. By the same token, all present owners who are not selling are exhibiting a positive demand for their stock given present prices. This positve demand is labelled the reservation demand (RD) in the above figure, which is the mirror image of the offer curve (Oc). What is not being offered for sale by present owners is being retained (held onto) - that is, it is being demanded.
The excess demand curve (XD) shows how much more land present owners and non owners want to own at each price - more is demanded over and above present holdings of land as the price falls.
The horizontal sum of the reservation demand (RD) and the excess demand (XD) is the total demand (TD) for land, or stock. It is the intersection of this total demand (TD)with the fixed supply (Sf) which determines the market price for land (Pe).

The trades we observe in a stock market are those between people who no longer want to own the stock, for whatever reason, shown by the offer curve (Oc) and those who want to own more than they presently have (which might be some or none at all) - shown by the demand for additional stock (excess demand) labelled XD above.  Offer and XD intersect at the trading price (Pe) and Qt of land (or stocks and shares) change hands between buyers and sellers.

When all these trades have been made,  the present owners are now willing to go on owning land at the present price, and are not willing to sell any.

Share Prices and Stock Market price movements.
So, what is a stock or share (or piece of land) worth?  The simple answer first - it is worth whatever someone else will pay for it.  The current market price of the share, or piece of land, or any other physical asset, is as good an estimate of what it is worth as you can get.  The current price reflects the total demand (reservation and excess demand) matched with the fixed available supply.  The price will change, as in all markets, only if demand shifts or supply shifts. For land and stock markets, the shifts in total supply are usually pretty trivial compared with the total stock.  So it is shifts in demand which are critical in determining prices in these stock markets.

What will shift the demand curve for land (or stocks and shares) and hence change their prices?

• expectations of future annual returns - if these expectations increase, then demand for the asset will increase - shift to the right, pushing up the asset price
• expectations of future selling price (market price) for the asset - it is expected to become more valuable in the future than it is now - which also pushes up the current market price

• The market price of an asset (P) is the present value of its expected future earnings stream or yield, say R/yr, as anticipated by the people trading the asset in the stock market.
• This present value discounts future earnings because:
• we have to wait to get them, and could simply put our money in a bank savings account (or buy a government bond) - the risk-free rate or return or discount rate (r)
• we need to cover the expected inflation rate in the future (p)
• we need a premium to cover the uncertainty (risk) associated with this future stream (u)
• The discount rate (or interest rate) i can thus be thought of as being made up of three components: the real risk-free rate of return (r), the expected inflation rate (p) and the risk premium (u).
• For any perpetual asset - whose returns are expected to continue indefinitely at some fixed value (R) - the Present Value = R/i

• If the return is fixed (assumed to be known and given) at R, then an increase in the price of the asset implies a lower rate of return (as a % annual payment) - as asset prices increase, their internal rates of return fall (other things being equal)
• If returns are expected to increase, then we would expect the price of the asset to increase, given the discount rate as the opportunity cost of capital - the rate of return we can earn on other alternative assets.
• If the interest rate in the economy increases, then the opportunity cost of capital increases, and asset prices will fall.

Suppose we do not expect rents to remain constant in the future.  What might they do?  They might be expected to increase (or fall) by some average and constant amount each year (say plus or minus £A per year).  In this case, the relevant sum for the present value of this stream of future rents (annual returns) becomes:
 PV = R/i + A/i² , where R is the basic rent or annual return (expected this year) and A is the amount by which we expect this annual return to change each year in the future, and i is the discount rate (the opportunity cost of capital - what we could earn elsewhere, investing in something else).  So, if we expect returns to fall, the present value is reduced compared with the simple sum which assumes the return stays constant.  But, if we expect returns to increase, then the present value increases, too.

Or, we might expect a continual percentage change in the annual return, say plus or minus g% per year.  In this case, the PV sum becomes:
PV = R/(i - g), so that, if the expected growth rate (g) in the returns on this asset are higher than the opportunity cost of capital (i), the present value for this asset goes to infinity: there is no price it is not worth paying for such an asset - which is an explanation of why share prices shoot upwards for companies expected to do very well in the future.

Depreciating assets - ones that wear out.
So, how do we account for the fact that physical plant and equipment wears out and becomes obsolete?  By making an allowance for the depreciation of the asset - the continual re-investment necessary to maintain it in a non-depreciating state.  Suppose that this depreciation rate is d%.  The gross return we need to get from this asset needs to cover this depreciation rate, so the net return we need to get on any depreciating asset is the gross return minus the estimated depreciation rate.  So, the gross return we expect to get should be i = r + p + u + d on these assets.

Implications

Cleaver (2013) Understanding the World Economy, chapter 1, p 21ff. describes the "Western Market Liberalisation" of the Thatcher & Reagan UK and US governments in particular beginning in 1979 - which 'liberalised' the financial and banking sectors on the presumption that markets know best.   For an update of the spectacular growth in the global finacial sector since then, see a summary report of Deutsche Bank’s "Mapping the World's Financial Markets" (Sanjeev Sanyal). Note, in particular, the substantial fluctuations in the market value of these financial assets versus their book values (Figure 3), reflecting the major swings in 'market sentiment' about the underlaying value of these assets.  Stock markets are particularly prone to such swings in sentiment. (See, also, Five charts that explain the world's wealth distribution.)

We should not necessarily be surprised that the value of global financial assets is 3 to 5 times as great as world GDP (Figure 2 of the Mapping link). In essence, this is the current market valuation of the stock of productive capital in the world, which shoud be able to produce future flows of income and GDP. What is more worrying is that the continual search for profit in these finacial markets encourages the development of 'derivatives' as a new supply of paper assets apparently related to underlying productive or valuable assets, but in practice substantially divorced from the underlying productive assets. As Warren Buffet famously remarked - they may well be 'weapons of mass destruction'. In particular, OTC derivatives contracts (over the counter, as opposed to those exhanged through organised exchanges) have grown substantially since financial deregulation in the late 1970s. Their importance is outlined here (by the Milken Institute), and documented by the Bank for International Settlements.

2.    Macroeconomics & International Trade: The FOREX market.

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• Demand for sterling (= supply of forex) depends on exports of goods and services, and on inward flows of investment funds from abroad (capital inflows)
• Supply of sterling (= demand for forex) depends on imports of goods and services, and on outward flows of investment funds from the UK to foreign countries (capital outflows)
• Balance of Payments (BoP) records all these transactions:
• Current Account  (Exports vs. Imports)
• balance of visible trade
• balance of invisible trade (services, tourism travel etc.)
• Capital Account (flows of investment (financial) funds into and out of the country
• Official Financing - change in the Central Bank (BoE in the UK) forex reserves.

• Increasing Income shifts Sf right (increasing demand for imports) -> e.r. depreciation or BoP deficit (the typical UK condition prior to 1971 - when under fixed exchange rates)
  
• Increasing Interest rates shift Sf left (discouraging capital outflows), and Df right (encouraging capital inflows -> e.r. appreciation or BoP surplus (the typical German condition prior to 1971 under fixed exchange rates)
  

• Increases Y
• Reduces r
• depreciates e.r -> more expensive imports, more competitive exports -> further expansionary effect.
• more likely to generate inflation

• Any currency which is viewed by the market as being vulnerable is subject to considerable short term capital outflows, which makes the currency even more vulnerable and liable to devaluation of fixed rate or depreciation of a floating rate. Speculative bubbles (either bull or bear) are frequent in the Forex market, especially but not only for the lesser currencies (can even affect the major currencies - euro, $, yen, £)
• rapid growth from Foreign Direct Investment (FDI) - direct, because it refers to actual purchases of goods and services and physical investment) tends to lead to currency appreciation as a result of the capital inflows, as does an increase in the price of raw materials and fuels, for net exporters of these goods (sometimes called the Dutch disease, after the experience of the Netherlands when North Sea Oil was first discovered and exploited). This e.r appreciation puts major pressure on the domestic economy - making imports more competitive and exports more difficult to sell, tending to contract the domestic economy. The domestic economy needs to be both robust and flexible (sensible banks and stock markets) to cope with this pressure.