Understanding Financial Systems and Intermediaries

Posted on Apr 4, 2025 in Business Administration and Management (BAM)

Financial System

The structure composed of a set of intermediaries to channel the savings of resources to finance private consumption, corporate investment, and public expenditure.

Funding

These are products that provide a means of maintaining wealth for those who possess it and an obligation to those who must.

  • Types:

  • 1. Liquidity:

    The ease and certainty measures to implement short-term assets without significant losses.

  • 2. Risk:

    The probability factor that the debtor does not keep his covenant.

  • 3. Performance:

    An active capacity to produce interest.

Financial Intermediaries

These are institutions specialized in the mediation between savers and investors.

  • Types:

  • 1. Banking:

    Offering financial products accepted as a medium of exchange (transfers, checks, etc.).

  • 2. Non-Banking:

    They cannot do what banks do (e.g., life insurance).

Banking Financial Intermediaries

  • A) The Bank of Spain:

    It is part of the European System of Central Banks.
    • Functions in the State:
      • Owned and manage foreign exchange reserves.
      • Promote stability and smooth functioning.
      • Put coins in circulation.
      • Provide treasury services.
      • Advise the Government.
      • Supervise the creditworthiness and performance of banks.
      • Develop and publish statistics related to their functions.

  • 2. Functions of the Eurosystem:

    • Define and implement monetary policy.
    • Make foreign exchange operations.
    • Hold and manage foreign exchange reserves.
    • Promote proper functioning of payment systems.
    • Issue and legally put notes into circulation.

  • B) Private Banking:

    Providing financing to operators while maintaining a portion of their funds in cash to cover possible withdrawals of deposits.

  • C) Savings:

    Specializing in fundraising from small savers.

Differences Between Banks

  • 1. Banks cannot raise funds by issuing equity securities in February, but they receive more favorable tax treatment than banks.

D) Credit Cooperatives

  • Non-Banking Financial Intermediaries:
    • 1. ICO Insurers
    • 2. Compañías
    • 3. Private Pension Funds
    • 4. Corporations and Investment Funds
    • 5. Leasing Companies: Financial institutions that fund the acquisition of assets and deliver them to the client company in return for rent.
    • 6. Factoring Companies: Another way corporate finance is the sale of all rights receivable represented on invoices or bills of exchange.
    • 7. Societies Mediators in Money Market.
    • 8. Mutual Guarantee Societies.
    • 9. Stock Exchange: Civil associations of public service.

Objective

To facilitate the negotiation of any value in a competitive, orderly, and continuous manner.

Values

  • 1. Renta Fija: Represents a percentage of the loan granted to a particular company.
  • 2. Renta Variable: Represents a percentage ownership of the capital of a company.

Features

  • Determine the price and the value of securities under the laws of supply and demand.
  • Price report, its variation, and transaction volumes.
  • Ensure fast execution and settlement of various transactions of purchase and sale.
  • Supervise the performance of companies and brokerage houses.

A) Equity Market

Companies tend to invest the funds thus collected in capital goods, which can take several years to produce profits.

  • 1. Markets: Create assets and channel savings into investment.
  • 2. Secondary Market: A flea market where previously issued securities trade, allowing shares to be sold in the primary market without inconveniencing business activity.

Mercado Continuo

A computer networking system between four Spanish stock exchanges that enables the trading of certain securities through computer terminals in real time.

Financing of Companies

All companies need monetary resources to finance the investments required for their economic activities.

  • Types:

  • 1. Own:

    More stable resources available to the company, which should not be returned in their lifetime and therefore are not subject to payment of interest.

  • Types:

    • Contributions of the owners.
    • Reserves.

  • 2. Others:

    Common forms include:
    • Trade credit.
    • Loans.
    • Borrowing.
    • Spontaneous funds.