Financial Intermediaries Flashcards
Financial intermediaries are not the same as….
Ordinary intermediaries, as these do not generate new instruments, they simply buy and sell the existing ones.
Financial intermediaries are also referred to as….
Depositary entities
Which operations are carried out by financial intermediaries?
Liability-side baking operations, asset-side banking operations and service operations
What do financial entities do through liability-side banking operations?
They capture resources that can be either equity or borrowed funds
What is equity made up of?
Capital and Reserves, primarily, but also, preferred stock, subordinated loans, and general risk fund
What does preferred stock refer to?
It is a hybrid instrument, that offers the holder a pre-determined (fixed or variable) return based on the distrubutable profits. It is the first in the priority for credit
What is a subordanted loan?
It is considered equity becasuse their orginal term must be lower than 5 years, and its contribution to equity depreciates 20% every years. They qualify towards the solvency ratio
What does general risk fund refer to?
Funds belonging to the entitity and not subject to any specific risk
How can borrrowed funds be classified?
Loans of the Bank of Spain, Interbank Operations, client debits, other liquid liabilities, and bills and other payments obligations
What is the most important item of the depositary entities’ borrowed funds?
Client debits, which consists of current account deposits, ordinary savings accounts, and fixed term deposits.
How can asset-side liability operations be classified?
According to risk, level of regulation, counterparties, currency, and type
What is one of the most important financial staments of a bank?
The income statement (profit and loss)
What are the different types of income?
Net income, fee income, results of operations (trading), and other income
How is the net income created?
It is the difference between the interests paid to savers and the interests gains from borrowing this quatities to borrowers, this flow of funds comes with interest rate and credit risk
