1- The Spanish financial system

Activities

1. Analyze your current financial situation. Would you say this is a deficit or surplus situation?
Free response from the student according to their financial situation.

2. Identify what type of economic units it is:

a) The Ruiz family has an annual income of €35,000 and annual expenses of €34,700.
b) The City Council of a certain locality has annual expenses of 1,000 million euros and annual
income of 850 million euros.
a) Economic unit with surplus.
b) Economic unit with deficit.

3. Search the Internet for the income and expenses of your local City Council and identify what
type of economic unit it is and explain why.
Free answer.

4. This year, Mercedes Gil has worked and has received an income of €54,000 which she has
used to buy a house with a garden for €120,000. In the acquisition operation he paid €20,000 with
the money he had saved and requested a mortgage loan to be able to pay the rest.
a) What type of economic unit is Mercedes?
b) Is it surplus or deficit before and after buying the house with a garden?
a) It is a domestic economy.
b) It has a surplus before the purchase and a deficit after it.

5. What does it mean to analyze the viability of projects and allocate financing to those
considered profitable?
Find out if they will provide benefits in the future and, if so, provide them with money to be able
to carry them out.

6. Explain with an example what it means that the financial system encourages savings by
economic units with a surplus.
Which offers, for example, bank deposits so that units with a surplus can put their money in
exchange for obtaining a return on it.

7. Why do you think a healthy payment system is important in the functioning of a financial
system?
So that it works with transparency.

8. Relate to what type of financial market the following products belong:

a) Stock market.
b) Public debt market.
c) Currency market.

1. Foreign exchange.
2. Treasure letters
3. Actions. a) 3; b) 2; c) 1

9. Explain in your words what the AIAF is.

It is the market where fixed income securities are traded.

12. Give an example of the breadth of the financial market.

Market where many securities are traded.

13. Cite an example of a financial market characterized by great depth.

The stock market.

14. Explain in your words what the expression "the stock market is not as transparent as the
public debt market" refers to.

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It means that in the debt market the prices are published, while in the securities market, they are not.

15. Explain with an example what a perfect market would be like taking into account:
a) Transparency.
b) The depth.
c) Freedom.
A market with all the information available to everyone, with a large number of suppliers and buyers,
and without entry and exit barriers.

16. Watch the following video from the European Central Bank and answer the questions:
https://goo.gl/WrnN7f
a) What is the meaning of the acronym MUS?
b) Can countries that do not belong to the euro zone participate?
c) What are the objectives of the Single Resolution Mechanism?
a) Single Supervision Mechanism.
b) Only those from the euro zone participate.
c) Ensure the safety and soundness of the European banking system and increase financial integration
and stability in Europe.

17. Explains the advantages and disadvantages of carrying out operations with financial
intermediaries.
• Advantages: they channel resources and facilitate individuals' access to these resources.
• Disadvantages: increase the cost of transactions.
18. Give an example of a financial operation carried out with a banking financial intermediary
and another of an operation with a non-banking financial intermediary.
Free answer.
Possible answer:
• Operation carried out with a bank financial intermediary: bank loan.
• Operation carried out with a non-banking financial intermediary: contracting insurance.
19. Explain in your words and with an example what it means that financial intermediaries
reduce the risk of financial assets by diversifying investment portfolios.
Free answer.

20. In your notebook, relate the type of financial intermediary to the body that supervises it: a)
Insurance companies.
b) Savings banks.
c) ICO.
d) Financial credit establishments.
e) Leasing companies.
f) Banks.
g) Credit cooperatives.
h) Investment companies.

1. Bank of Spain.
2. General Directorate of Insurance and FP.
3. CNMV.
1. b), c), d), e), f), g).
2. to).
3. h).

21. What is the intermediation margin?

It is a commission derived from the mediation work between savers and investors.

22. What is the purpose of the single banking supervisor?

Strengthen confidence in the banking sector.

23. What are the guarantees offered by financial intermediaries to suppliers and demanders?
They offer guarantees to fund providers (for example, in the case of bank deposits, the type of
profitability offered) and to fund demanders, as in the case of loans.

24. How many countries are part of the Eurosystem? And how many are part of the European

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System of Central Banks?
The Eurosystem is made up of 19 countries. 29 national banks are part of the ESCB along with
the ECB.

25. What is the reason for the existence of the Eurosystem and the European System of Central
Banks?
At first it was thought that all countries would adopt the euro, but as this has not been the case,
both organizations coexist.

26. Explain what it means to promote the proper functioning of payment systems in the euro
zone.
It means that it is ensured that payment movements are carried out with transparency.

27. Explains the mediation and transformation tasks attributed to private banks.
• Mediation tasks: putting two parties in contact so that they can exchange the financial
instrument.
• Transformation work: the financial asset that those seeking financing receive is not the same
as that sold to those who deposit their money.

28. Look for information about the disappearance of savings banks and their merger with
commercial banks.
Free answer.
29. Cite two examples of current banks that were formerly savings banks.
Caixabank, Bankia.

30. What is the main difference between savings banks and banks?
The difference is that savings banks are not for profit like banks.

31. How many banks currently exist in Spain? To answer the question, you can consult the
Bank of Spain website.
There are 61 according to the Bank of Spain website: www.bde.es

32. What is the scope of action of a savings bank? What do you think is the reason for this
limitation in the scope of action?
It will not exceed the territory of an autonomous community.
This limitation in the scope of action is due to the fact that Law 26/2013, of December 27, on
savings banks and banking foundations establishes in its article 2 that its scope of action will
not exceed the territory of an autonomous community.

33. Copy the following diagram into your notebook and fill in the missing spaces:

34. Explain what credit cooperatives are for.

Assist with the financial needs of its partners and third parties in the exercise of their activities.

35. Find out how many credit unions there are in your area. How are they called?
There are 64 in Spain according to the website: www.bde.es ; Students have to search in their
locality.

36. Indicate the differences you find between:

• Rural box.
• Professional box.
• Popular box.
• Rural savings bank: cooperative credit societies that are linked to certain rural activities.
• Professional fund: cooperative credit societies that are linked to certain professional
activities such as engineers.
• Caja popular: cooperative credit societies that are linked to certain business and professional
activities.

37. Can any citizen access the services of the Engineers Fund or do you need to be an engineer
to access it?
Any citizen can access.

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38. What is the origin of Cajamar?
It arises as a result of the merger of rural savings banks from Andalusia, Madrid, Castilla y León,
the Balearic Islands, the Valencian Community and the Canary Islands.
39. We are currently in the financial and technological revolution.
Find out the revolutionary ways to pay that are emerging every day and whether, for example,
Facebook can operate as an electronic money entity.
Free answer.

40. Find out more ICO financing lines at https://www.ico.es/web/ico/empresas-y-

entrepreneurshttps://www.ico.es/web/ico/empresas-y-emprendedores .
• ICO companies and entrepreneurs 2017: with APR interest rates that are more beneficial than
in any banking entity.
• ICO guarantee SGR/SAECA 2017: for self-employed workers and companies that have the
guarantee of an SGR or SAECA and need liquidity.
• ICO commercial credit 2017: for self-employed workers and companies with registered offices
in Spain and who want to obtain liquidity by advance payment of their invoices from commercial
activity.

41. Explain what the purpose of the ICO is for you and what applications it can have in your life.
Facilitate access to financing for companies and the self-employed.
Free answer.

42. Find the difference between brokers and dealers . Cite an example of each.
Brokers act only on behalf of others. Dealers act on their own behalf and on behalf of others.

43. Up to what maximum limit does the Deposit Guarantee Fund guarantee the deposits of
clients of financial institutions?
€100,000 for cash deposits.

44. Explains what it means for financial credit establishments to cover the guarantee
coefficient.
It means that it ensures the solvency of the entities to which it applies according to the
investment made and the risk assumed.

45. In relation to the insurance activity, it defines the policyholder, premium and compensation.
• The policyholder is the person who contracts it and pays a certain amount.
• The premium is the amount paid by the policyholder.
• Compensation is the agreed amount that will be paid to the insurance beneficiary if the risk
materializes and the incident occurs.

review test

1. The financial system is:

a) The set of institutions, media and markets whose objective is to channel savings into
investment.
b) The set of entities in charge of advising the Government.
c) The set of banks and savings banks that make up a country.
d) The set of banking institutions in the country.

2. Economic units whose income exceeds expenses are called economic units with:
a) Deficit.
b) Surplus.
c) Financing.
d) Investment.

3. Who can create money?

a) Non-banking financial intermediaries.
b) Banking financial intermediaries.
c) All financial intermediaries.
d) No financial intermediary.

4. Which of the following are companies whose corporate purpose is to serve the
interests and financial needs of their partners through the exercise of the activities of
credit institutions?
a) Cooperative societies.

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b) Savings banks.
c) Commercial banks.
d) Securities companies.

5. They are credit institutions:

a)The ICO.
b) Insurance companies.
c) Securities companies.
d) Securities agencies.

6. They are credit financial establishments:

a) Savings banks.
b) Financial leasing companies ( leasing ).
c) Investment fund management agencies.
d) Insurance companies.

7. What is the ESCB?

a) European Central Bank System.
b) Spanish Central Bank System.
c) European System of Central Banks.
d) Central Bank State System.

8. The direct market is one in which one of the participants in the purchase and sale
operation is a financial intermediary, who puts providers and demanders of funds in
contact and charges a commission:
a) TRUE.
b) False, it is an indirect market.
c) False, it is an intermediated market.
d) False, it does not meet market conditions.

9. It is a function of a financial market:

a) Offer products that manage to adapt to the needs of savers and investors at all times.

b) Achieve monetary and financial stability of the financial system through the expansive policies
of organized markets.
c) Put in contact the economic agents involved in financial operations.
d) None is correct.

10. They are deposit guarantee funds:

a) Institutions that were created to guarantee clients of financial institutions the
restitution of deposits or compensation for investments they have made in them with a
maximum limit of €100,000.
b) Institutions that were created to guarantee clients of financial institutions the restitution of
deposits or compensation for investments they have made in them with a maximum limit of
€150,000.
c) Institutions that were created to guarantee clients of financial institutions the restitution of
deposits or compensation for investments they have made in them with a maximum limit of
€120,000.
d) Those that do not guarantee more than €50,000.

11. What is the highest authority in Spain in monetary policy, with financial autonomy in
relation to the Government and which is integrated into the ESCB with the national
central banks of the EU countries and the ECB?
a)The Bank of Spain.
b) The Ministry of Economy and Competitiveness.
c) The Ministry of Finance and Public Function.
d) The president of the Government.

Check your learning

1. Classify the following elements into financial institutions, markets, instruments or

intermediaries:
a) National Stock Market Commission.
b) Investment services companies.

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 c) Savings account.
d) Bank of Spain.
e) Caixa d'Ontinyent.
f) Cajamar.
g) European Central Bank.
h) Securities agencies.
i) BBVA.
j) Stock Exchange.
k) Insurance companies.
The classification is as follows:
l) Institutions: European Central Bank.
m) Markets: Stock market.
n) Instruments: savings account.
o) Financial intermediaries: National Securities Market Commission, investment services
companies, Bank of Spain, Caixa d'Ontinyent, Cajamar, securities agencies, BBVA and insurance
companies.

2. Who grants authorization for the creation of new commercial banks?

The European Central Bank since January 1, 2014.

3. Of the following credit institutions, identify those that are deposit institutions:
a) Banks.
b) Mutual guarantee companies.
c) Official Credit Institute.
d) Electronic money entities.
e) Savings banks.
f) Financial credit establishments.
g) Credit cooperatives.
a) Banks.

e) Savings banks.
g) Credit cooperatives.

4. Can PayPal be considered an electronic money institution? Because?

Yes, because it is admitted as a means of payment entity.

5. Do you know any financial credit establishment? Name at least two.

Examples: Cetelem, Caixabank consumer.

6. Identifies a banking and a non-banking financial institution. Explain what

characteristics differentiate them.
• Banking financial institution: commercial bank.
• Non-banking financial institution: mortgage credit company (it is a financial institution but not a
bank, it grants loans but cannot take deposits).

7. Indicate the banking and non-banking financial intermediaries that you know.
Financial intermediaries can be:
Banking:
• Bank of Spain.
• Private banks.
• Savings banks.
• Credit cooperatives.
• Official Credit Institute.
• Electronic money entities.
• Deposit Guarantee Fund.
Non-banking:
• Investment funds.
• Investment companies.
• OBE.
• SGR.

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• Insurance institutions.

8. How many stock exchanges do you know? Name them.

Free answer. Possible answer: in Spain there are four stock exchanges. They are those of Madrid,
Barcelona, Valencia and Bilbao.

9. What function do the institutions called supervisors have in the Spanish financial
system? What do they monitor and for what purpose?
• Ensure the safety and soundness of the European banking system and increase financial
integration and stability in Europe.
• They supervise the actions of financial intermediaries with the aim of reinforcing confidence in
the banking sector.

10. Which of the following institutions are supervised by the Bank of Spain?
• Insurance companies.
• Private banking.
• Securities companies.
• Mutual guarantee company.
• Official Credit Institute.
• Savings banks.
• Leasing entities.
• Pension fund management entities.
• Portfolio management companies.
• Collective investment institutions.
Private banking, SGR, ICO, savings banks, leasing entities.

11. Of the following institutions, indicate those that are non-banking:

a) Appraisal companies.
b) Savings banks.
c) Factoring entities.
d) Leasing entities.

e) Banks.
f) Insurance companies.
Non-banking institutions: appraisal companies, factoring entities, leasing entities, insurance
companies.

It details the specific aspects of the existing products and services on the market.

12. The company Helado y Turrón, S. A., is dedicated to the sale of ice cream and nougat
nationwide. It has had a very favorable campaign and is at the end of the summer
season, finalizing orders. When you take stock, you see that you have obtained resources
of €125,000, which you can use to invest wherever you want in order to obtain maximum
profitability in 100 days.
On the other hand, Run&Fun, S. A., is a company dedicated to sporting events that, due to
the great success achieved in the latest editions of its events, wants to expand its activity
and, to do so, needs monetary resources. Your goal is to raise €100,000 to return in the
long term to organize an event, which will lead you to strategically position yourself as a
leader in your sector.
a) What financial needs do these two companies have?
b) What financial products or services do you think are best for each of them? Choose at
least two for each one.
c) Is there a way for the needs of both to complement each other?
d) Establish the advantages and disadvantages of each product or service chosen.

a) The company Helado y Turrón, SA, has financing needs; and the company Run&Fun, SA,
investment needs.
b) Free answer. They can, for example, choose deposits for the first and a loan for the second.
c) Free answer. For example, they can go to the financial system to seek financing.
d) Free answer.

Recognizes the variables that intervene in the operations carried out with a financial
product or service.

13. In free markets, how is the price of the assets being exchanged set?
These markets, also called unregulated, set the price through the free action of supply and demand.

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14. In an issue of treasury bills, do new or secondary financial assets act? What market
do they belong to?
They act as new or primary financial assets, and belong to the primary market.

15. What should be the characteristics of a market to approach a perfect market?

In terms of breadth, there should be a very large volume of assets that will be exchanged in the
market; Regarding transparency: that the information was easy to obtain and without financial
compensation; Regarding freedom: that there were no restrictions on access to or exit from the
market; Regarding depth: that there was a high number of buy and sell orders; and, finally,
regarding flexibility: allowing market operators to react quickly to changes.

16. Explain the characteristics of a financial product or service that is offered to you in a
large store to facilitate access to financing.
Free answer. For example, they can explain how to finance a computer at El Corte Inglés or
Carrefour.

17. Visit the following website: www.finanzasparatodos.es and look for an article called
"Differences between credits and loans." When you have read it, answer the following
questions:
a) What subjects are involved in each of the operations?
b) How does each of these financial products work?
a) Lender and borrower or entity and client.

b) In the loan, all the money is delivered at the beginning of the operation, and in the credit, the
entity makes the amount available to the client. In both cases, interest is charged in exchange.

18. Imagine that you are going to study the following financial products and services.
What subjects are involved?
• Investment fund.
• Loan in the ICO.
• Buy shares.
• Mortgage loan.
• Leasing .
• Confirming .
On the one hand, a financial entity, banking or not, and on the other, the client.

19. What is a SICAV? And an IBS?

• The SICAV is a collective investment figure, they are public limited companies that pay taxes at
1%.
• The SII is a real estate investment company in urban assets for leasing.

20. Explains how an investment fund works and the subjects involved in it.
Investment funds are collective investment institutions and are made up of contributions from
several savers, and managed by experts who invest them jointly where they consider they will have
the maximum profitability.

21. Do investment companies need a management company? And a depository

company?
Investment companies do not need a management company; the depositary company, yes.

22. What is the difference between a securities company and a securities agency?
The securities company can operate on its own behalf and on behalf of others; the securities
agency, only on behalf of others.

23. Are insurance companies financial intermediaries?

They are non-banking intermediaries.

24. What subjects are involved in insurance entities and what is their function?
Policyholder, insured, beneficiary and insurer. The functions are:
• Policyholder: signs the policy and assumes the obligations contained in it.
• Insured: is the person on whom the consequences of the incident fall.
• Beneficiary: receives compensation if the insured contingency occurs.
• Insurer: legal entity that in exchange for a premium assumes the risk being covered.

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25. If you need short-term financing, what financial products or services does your bank
offer you?
Free answer. The banking entity can offer credits, discounted bills, etc.

26. Explain the difference between active and passive financial products. Give an
example of each.
Loans are an asset for the entity, since having lent money to the client, for the entity it constitutes
a right to collect said money.
Deposits are financial liability products for the entity. In a deposit, the client delivers an amount of
money that the bank will have to return after a certain time, along with interest. It constitutes an
obligation for the entity, which is why we say that a deposit is a liability financial product.

27. What is financial leasing? What advantage does it have over a purchase?
It is rent with purchase option. The advantage is that at the end of the operation the subject can
acquire the good.

28. Go to the ING website: www.ingdirect.es . Choose two financial products to save and
make a list of the advantages and disadvantages of each product.

Free answer.

29. Imagine that you are going to buy a flat. To do this, you have decided to apply for a
mortgage. Look for three entities where you can request that mortgage and explain
which one offers you the most advantageous conditions in terms of:
• Type of interest.
• Opening commission.
• Partial cancellation fee.
Copy into your notebook and complete the following table:

30. Is the Caja de Ingenieros a savings bank? And Cajamar?

It is a credit cooperative. Cajamar is also a credit cooperative.

31. Conduct a study of these two entities to know what type they are and what is the
origin of their appearance.
The Engineers Fund emerged to support engineering projects; and Cajamar was born as an
agricultural cooperative.

32. Read the following article and answer the question.

What are the advantages of paying through an electronic money institution?
The main advantages are its ease of payment from the customer's home and security in
transactions.

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