1. Financial institutions deal with financial assets, assets that promise future payments from financial contracts, such as securities alia loans. These institutions also deliver services, relying on their reputations to attract customers for relationships often based on trust. Similarly, a nonfinancial business expects future benefits in the form of cash from sales of its tangible and service products、as well as from owning a recognizable trademark or slogan or a patent on a production process. Because so nlany things are assets, it is convenient to divide them into two major subsets: real assets and financial assets. Real, tangible assets arc those expected to provide benefits based on their fundamental qualities. A person's honle transfers benefits commensurate with the quality of its construction, its location, and its size. A corporation's main computer provides benefits based on its speed, the size of its memory, the ease of its use, and the frequency with which it needs repair. A financial asset, in contrast, is a contract that oilers a promise of payment in the future from the party that issued the contract. Like other businesses, a financial institution acquires and uses assets so that the value of their benefits exceeds their costs. The key difference between financial institutions and other firms is that most of the assets that financial institutions hold are financial assets. Financial institutions use funds from their own creditors and owners to acquire financial claims against others. They may lend funds to individuals, businesses and governments or they may purchase ownership shares in other businesses. The future benefits that financial institutions expect to receive thus depend on the performance of the parties whose financial liabilities they purchase. Tile mailldistinction between financial institutions and other firms is not so lnuch in how they raise hinds, because all businesses issue financial liabilities to do so, but in what they do with these hinds.
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2. Federal Reserve policymakers clashed over the benefits and risks of launching a $600 billion program to rejuvenate the economy, but voted for it anyway, according to minutes of their closed-door deliberations released Tuesday. Despite a ileal"unanimous 10-1 vote in support of the program, the minutes from the Nov. 2-3meeting show that some Fed officials had concerns about embarking on a second round of stimulus. The Fed also discussed at the October meeting whether to adopt an explicit inflation target but decided against it. Inflation has been running below the Fed's comfort zone of between 1.5 percent and 2 percent. That spun'ed some concern of deftation. Explaining the need for more stimulus, the Fed said that progress on its key dual mission of maximizing employment and making sure prices are on an even keel had been "disappointingly slow." In fact, the Fed downgraded its forecasts for this year and next. Fed officials said that economic growth would be weaker and unemployment higher than previously estimated in June.
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3. Two major themes are pursue D. The first theme is that investment is not only fhe engine of economic growth in China but also the main source of technological progress, productivity growth and structural change. In developing this argument, James Riedel, Jing Jin and Jian Gao provide in Chapter 1 a brief review of China's economic reforms and their outcomes in the four economic sectors agriculture, industry, foreign trade and finance. They conclude that the financial see. tor is the weakest and the most crucial for sustaining growth in the future. In Chapter 2 reviewing recent studies of China's growth, Riedel, Jin and Gao find that these have not been able to explain economic growth in China, because they do not consider independent technological improvement over the past two decades. The authors therefore challenge conventional growth theory, and argue that the function of investment is not just to replace obsolete capital but more importantly to upgrade technology in the economy: technological change and investment are part and parcel of the same thing. Changing technology requires investment, and investment inevitably involves technological change. As a resuh, investment not only drives China's economic growth but is also the main source of technological progress, productivity growth and structural change. This argument is probably the book's most valuable contribution; it also serves as the foundation for the discussion of issues in Chinese financial sector in the rest of the book.