Understanding Investment Resources, Financial Intermediaries, and Money Supply
Investment Resources and Financial Intermediaries
Investment of Resources
Value for money: Resources available through asset operations, including assets and rights, are recovered on mutually agreed terms.
Loans
Banks grant funds to individuals or companies, with the commitment to return them within a specified time. Types of loans include:
- Personal Loans: Designed to finance the acquisition of consumer goods.
- Mortgage Loans: House purchases remain the guarantee of repayment; ownership transfers to the bank if not paid.
Credits
Banks grant customers rights to access funds up to a determined limit.
Complementary Services
Bank Cards
- Debit Cards: Allow cash withdrawals from the account via ATMs and enable payments for shopping, provided sufficient funds are available.
- Credit Cards: Provide a credit line to the holder, with a defined limit available each month.
Other Financial Intermediaries
Insurance Companies
Issue insurance policies as financial assets, offering risk coverage in exchange for a premium.
Societies and Investment Funds
Entities where owners invest, hoping to gain returns on assets managed by the society. Each investor acquires shares of the total investment.
Mutual or Pension Funds
Institutions that aggregate contributions for investment purposes. Upon retirement, members receive the contributed money plus generated yields, providing complementary pension security.
Leasing Entities
Lease property with the option to purchase. This represents a financing possibility. At the end of the lease, one can:
- Acquire the property by paying a final fee.
- Renew the lease contract.
- Not exercise the purchase option and return the property.
A minor league contract is similar to renting, with the fee including additional services, maintenance, and investments.
Factoring Entities
Involve assigning bills and invoices to a company that takes charge of collecting payments from clients.
Mutual Guarantee Companies (SGR)
Composed of small and medium enterprises, providing finance to their constituent entities by guaranteeing their credits.
The Money Supply
The money supply is the total amount of money available to economic agents in an economy. It consists of legal tender and bank deposits.
Types of Money Supply
- M1: Notes, coins, and demand deposits.
- M2: M1 plus savings deposits.
- M3: M2 plus term deposits.
Reserve Requirement
Monetary authorities set a limit on money creation by requiring banks to hold a minimum proportion of their total deposits as reserves in lawful money.
Value of Money and Interest
Loss of Purchasing Power
Price increases reduce the amount one can purchase with the same amount of money over time. To combat this, families keep a small portion of their assets as cash and convert the rest into financial assets, receiving remuneration in the form of interest.
Interest
The price fixed for the use of money, viewed from two perspectives:
- The Lender: Expects their money to generate a return.
- The Borrower: Is willing to pay an extra amount to obtain funds, usually expressed as an annual percentage of the borrowed amount.
Types of Interest Rates
- Risk: Higher interest rates are charged to borrowers who cannot guarantee repayment.
- Deadline: Longer loan terms usually result in higher interest rates.
- Liquidity: Lower liquidity investments are offset by higher interest rates.
TAE (Annual Percentage Rate)
An indicator that measures the profitability or interest of a loan, allowing comparisons between alternatives.