【正文】 exploit v. to employ to the greatest possible advantage開發(fā) eg. We shall exploit our rich resource to expand the economy. 我們應(yīng)該利用我們豐富的資源發(fā)展經(jīng)濟 。 selling one can take a great deal of time. If an individual saver has lent money directly to another person, the loan can also be an illiquid asset. If the lender suddenly needs cash, he must either persuade the borrower to repay quickly, which may not be possible, or he must find someone else who will buy the loan from him, which may be very difficult. Text : Although the intermediary may use its funds to make illiquid loans, its size allows it to hold some funds idle as cash to provide liquidity to individual depositors. Only when a great many depositors want to withdraw deposits at the same time, which happens when there is a run on the institution, will the financial intermediary be unable to provide liquidity. Unless it can obtain help from the government or other institutions, it will be forced to suspend payments to depositors. Text : A SOURCE OF SHOCKS AND BUMPS TO THE ECONOMY In addition to lending money to individuals and groups, there are other ways in which banks are part of financial markets. Banks borrow and lend funds among themselves in the federalfunds market. They buy and sell foreign exchange. They buy and sell government and mercial debt. And finally, one form of bank debt serves as money in modern economies, and banks create this debt as a result of their financial transactions. Text : Economists are concerned that financial intermediaries can be a source of shocks to the economy, bumps that can disrupt the normal flow of economic life. This concern arises for at least two reasons. First, bank debt serves as money, so disruptions to banks can affect the amount of money in circulation. Second, financial intermediaries are tied together through chains of debts and assets. Text : Because of these linkages, the failure of one financial intermediary can weaken others, increasing their chances of failure. As a result, there is the possibility that if a key financial intermediary fails, that failure can create a domino effect that could cause other financial institutions to fail, ultimately causing the financial sector to seize up and stop functioning. Serious disruption of the financial markets will disrupt the rest of the economy. Text : Portfolio Choice CHARACTERISTICS OF FINANCIAL ASSETS Portfolio choice involves decisions about the way we want to hold our assets (or to structure our liabilities). It is a fancy term for something we do all the time. For example, a yard sale is an example of portfolio adjustment. People holding a yard sale are attempting to convert assets in the form clothing and household items into cash. They are not changing the amount of assets they have, but rather the form in which they hold them. Text : From a macroeconomic perspective, most important cases of portfolio adjustment involve financial assets. When we look at financial assets, there are three characteristics that most people want to have in their assets. First, they like assets with low risk. Second, they want assets that are liquid, assets that can easily be converted to money and spent. Third, they like assets that give them a high rate of return. Because no asset bines all three characteristics, people face tradeoffs. Text : If they want a higher return, they usually have to accept more risk or less liquidity. For example, over the past half century the average return on holding mon stocks has been higher than the return on holding passbook savings in a bank. However, the high average return on mon stocks is the result of some stocks performing very well while others perform poorly. Investment in stocks can be quite risky. Text : BALANCE SHEET Many issues in portfolio choice can be illustrated with a balance sheet. A balance sheet is based on the definition of worth or wealth: (1) Net Worth = Assets Liabilities An asset is what one owns and a liability is what one owes. Using very elementary algebra, one can rewrite this equation as: (2) Assets = Net Worth + Liabilities Since this equation is based on a definition, the righthand and lefthand sides must equal each other or balance, and hence the name balance sheet. Text : Balance sheets provide a precise way to analyze banking transactions. The table below shows balance sheets of a hypothetical mercial bank and one of its customers. The deposits of customers are liabilities to the bank because they are amounts that the bank owes to them. On the other hand, these same deposits are assets for the customers. The loans the bank makes to consumers and businesses are assets to the bank but liabilities to the consumers and businesses. Text : Hypothetical Balance Sheets Commercial Bank . Germaine Assets . Liabilities and Net Worth Assets . Liabilities and Net Worth Vault Cash $1,000,000 loans $9,000,000 Checking Deposits $4,9000,000 Savings Deposits $4,900,000 Net Worth $200,000 Deposits at Bank $400 cash $200 car $3000 personal items $2021 Loan from Bank $2021 Net Worth $3600 Text : Suppose that Germaine, the bank customer, decides to deposit into a savings account some of the cash she has in her piggy bank. The effect on the bank will be to increase its vault cash on its asset side and also to increase its savings deposits on its liability side. For Germaine, the transaction will not affect the liability side of her balance sheet at all. She will reduce her cash holdings and increase the amount she has in her savings account. As a result of this portfolio decision that Germaine makes