Banking and Finance: Deposits, Money, and the Spanish Financial System

Types of Bank Deposits

Checking Account: A deposit account that allows for frequent transactions, typically used by individuals and businesses.

Savings Account: A deposit account designed for saving money, offering immediate availability of funds.

Term Deposits: Deposits held for a fixed term with a predetermined interest rate. The interest rate is typically higher than that of checking or savings accounts. Early withdrawal may be possible, but often without interest.

Functions of Money

Medium of Exchange: Used to buy goods and services.

Unit of Account: Provides a standard measure of value for all goods and services.

Store of Value: A way to store wealth, although its value can be eroded by inflation.

Demand for Money

People demand money for transactions (to purchase goods and services).

Banks and the Creation of Money

Savers: Individuals or entities with excess cash resources who deposit funds in banks for security.

Borrowers: Individuals or entities who obtain loans from banks.

Banks act as financial intermediaries, accepting deposits and providing loans. They charge a higher interest rate on loans than they pay on deposits. Banks hold reserves, a percentage of deposits they cannot lend, to maintain liquidity and meet regulatory requirements. These reserves are either held by the bank or deposited with the central bank. The remaining money is lent out, creating new deposits in other banks, and the cycle continues.

Spanish Financial System

Financial Intermediaries:

• Banking Financial Intermediaries: Deal with direct financial assets considered money.
• Non-Banking Financial Intermediaries: Deal with indirect financial assets not considered money.

Banking Institutions

Bank of Spain: A unique institution that primarily works with the government, other foreign banks, and the banking system, rather than directly with consumers and businesses. It controls Spanish public services, provides credit to public services and the government.

Commercial Banks: Work with individuals, businesses, and other entities, attracting financial resources and providing loans.

Savings Banks: Similar to commercial banks in function, but with a focus on social work. They are unlisted and controlled by autonomous communities.

Non-Bank Financial Intermediaries

Insurance Companies: Provide financial protection against losses in the event of specified events.

Leasing Companies: Offer equipment rentals for a fee. At the end of the contract, options include renewal, termination, or purchase of the asset.

Factoring Companies: Purchase accounts receivable from businesses, assuming the risk of non-payment. This provides immediate cash flow for the business, but at a cost.