Posted on Categories:Monetary Economics, 货币银行学, 金融代写

# 金融代写|货币银行学代写Monetary Economics代考|ECOS3010 Multiple creation of financial assets

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## 金融代写|货币银行学代写Monetary Economics代考|Multiple creation of financial assets

All financial assets are “created” and have no intrinsic physical existence, but are the liabilities of some economic unit or other. They may be examined in terms of their characteristics, especially in terms of their yield or expected yield, risk of loss, marketability, maturity and so on. Anyone purchasing a financial asset may be thought of as purchasing a particular set of characteristics, such as risk and marketability etc., in exchange for a specified expected yield on the asset. Financial intermediaries cater to this demand through the creation of assets with differing combinations of characteristics. For many pairs of assets, it is feasible for some intermediary to create a third asset that offers a mix of the characteristics of the original two assets, so that the multiplicity of differentiated assets is a common outcome of unregulated financial intermediation.

Financial intermediaries typically issue assets with more desirable characteristics for lenders than do the ultimate borrowers, persuading the latter to hold the liabilities of the intermediaries. In turn, the intermediaries use the funds obtained from the sale of their liabilities to purchase the liabilities of other borrowers which pay a higher expected net yield, thus covering the expenses of intermediation and making a profit in the process.

Financial intermediaries permeating an unregulated economy lead to a multiplicative creation of their liabilities. To illustrate, consider an economy in which everyone is willing to hold the asset A issued by a given intermediary. ${ }^{15}$ Now assume that an ultimate lender saves $\$ 100$and exchanges it for the asset$\mathrm{A}$. The intermediary transfers (lends) the$\$100$ to another individual B, who transfers them in some way, such as through consumption or investment expenditures, to a third individual $\mathrm{C}$. The last individual again exchanges the $\$ 100$of funds for the assets issued by the intermediary. Suppose these are the only transactions that take place in a given period and there are no leakages at any point. Then, the intermediary, for an initial$\$100$ lent to it, has created $\$ 100$of its liabilities. The amount created over$n$periods will be$\$100 n$ and will approach infinity over time. The implication of this example is clear: the multiplicative creation of the liabilities of financial intermediaries is inherent in an economy in which these liabilities are widely held. The extent of this creation is limited by the leakages out of the recycling process. Thus, if individual $\mathrm{C}$ had only deposited $\$ 50$of resources with the intermediary and retained the remainder in his storage, the recycling process would have had a leakage of$\$50$ (or 50 percent). The total assets created by the intermediary in the period would be worth only $\$ 50$and only$\$100$ over time.

## 金融代写|货币银行学代写Monetary Economics代考|Distinctive role of banks as financial intermediaries

Banks are not the only financial intermediaries in the economy. But they are the most widespread and their liabilities are so widely demanded that the multiple creation of their liabilities is both the greatest and the most widely recognized. Banks, accepting demand and time deposits, differ from other financial intermediaries in that their liabilities are readily acceptable and are liquid since demand deposits are a medium of payments and hence a form of money. Further, another of their liabilities, time deposits, is a very close substitute for currency and demand deposits. By comparison, the liabilities of non-bank financial intermediaries are not directly a medium of payments, nor are they perfect substitutes for it. This special role of the liabilities of banks in the economy makes the banks a rather distinctive type of financial intermediary and makes a study of their behavior and reaction to monetary policy especially important.

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