Financial Concepts, Monetary Policy, and Trade Protection

Financial Concepts and Monetary Policy

Understanding Finance

Finance, where half payment is served, functions as a unit of account to express the value of goods and services and acts as a store of value.

Key Features of Money

• Desirable: Your offer should be limited.
• Divisible: To purchase goods at different prices.
• Durable: It does not lose value over time.
• Easy to Carry: It collects a lot of value in relation to its weight and size.
• Difficult to Forge: For obvious reasons.

Functions of Money

• Medium of Exchange and Payment: The use of money as a medium of exchange allows people to sell their products for money and then use that money to buy what interests them.
• Unit of Account: Money can be used as a single unit of account, without needing to physically exist.
• Store of Value: Money must be a valid instrument as a store of value; that is, it must retain its purchasing power over time.

Features of Financial Assets

• Liquidity: The capacity of an asset to be converted into cash.
• Profitability: The remuneration generated by the possession of a financial asset.
• Security: The security provided by a financial asset determines the trust it retains its value over time.
• Duration: The period that must transpire to return the borrowed amount. Usually, the longer the term, the greater the return on financial assets.

Capital Markets Explained

• Primary Market: This is the market where shares are first placed. In practice, share issuers come to the stock exchange to offer shares or capital amplifications.
• Secondary Market: This is the market where transactions are carried out for the sale of shares once they have been created.

Monetary Policy and Central Banking

Monetary Policy Fundamentals

Monetary policy is the set of actions undertaken by the central bank of a country to achieve certain economic objectives, such as controlling inflation or encouraging investment.

Monetary Policy Instruments

• Open Market Operations: Used to control interest rates and the management of market liquidity, primarily through asset purchases and sales of bonds and guaranteed loans.
• Credit Standing Facilities: Banks can obtain overnight liquidity.
• Reserve Requirements: This is a mandatory coefficient that the Eurosystem applies to credit institutions, with its primary objective being the control of liquidity. For example, if the ratio were 2%...

Functions of the Bank of Spain

• Execute Monetary Policy: Executes in Spain the monetary policy decided by the European Central Bank (ECB).
• Provide Treasury Services: Serves as Treasury, holding and maintaining the accounts of the Treasury, and managing its receipts and payments.
• Act as Placement Agent for Public Debt: Performs this function by contributing its technical means to the management of tasks such as Treasury bonds and notes.

Protectionist Trade Tools

Understanding Trade Protectionism

• Tariffs: The effect of a tariff on imported goods is to increase their price in order to protect a domestic like product that would otherwise be at a disadvantage.
• Quotas or Contingents: A quota limits the volume of imports that can be performed over a period of time. Quotas might be set unilaterally or mutually agreed upon.
• Export Quotas: The fixing of a quantitative restriction, voluntary or negotiated, with exporters.
• Embargoes: Occur on certain imports, often for illegal goods like drugs.
• Subsidies: Normally granted to export products so they can sell cheaper abroad and become more competitive. E.g., aeronautics.
• Import Licensing: Licenses represent an import authorization for the acquisition of certain imported products.
• Non-Tariff Barriers: These often represent barriers to the entry of imported products. The establishment of certain standards involving health checks or quality controls can restrict imports.
• Anti-Dumping Measures: (Economic, Social, and Ecological considerations)