Financial Activity: A Comprehensive Guide to Finance and Financial Entities

Posted on Aug 2, 2024 in Economy

Financial Activity (Law 26702)

Finance

Finance, derived from economics, involves obtaining and managing money, resources, or capital by individuals or organizations. It encompasses how resources are acquired, spent, invested, or monetized.

Private Financial Activity

Private financial activity refers to the techniques used by individuals or organizations to manage their financial resources, particularly the balance between income and expenses, and the risks associated with their investments.

Public Financial Activity

Public financial activity encompasses the actions taken by the state to generate revenue and make expenditures necessary to achieve its objectives, which is to meet the needs of its citizens.

Financial Entities (Law 26702)

  1. Banks
  2. Municipal and rural savings banks
  3. EDPYMES (Small and Medium-Sized Enterprise Development Entities)
  4. Savings and credit cooperatives

Banking

Credit Operations

Credit operations are those performed by financial institutions in a professional manner, facilitating lending and borrowing transactions.

Active Operations

Active operations involve the bank lending money to depositors, which increases the money supply in the economy. Financial institutions generate new money from these deposits and extend credit to individuals, companies, or organizations that request it. The interest charged on these loans varies depending on the type of loan.

Passive Operations

Passive operations involve the financial institution collecting or receiving money from individuals. These fundraising operations, known as passive operations, are typically carried out through deposits, which can be classified into three categories:

  • Current account
  • Savings account
  • Time deposit account

Net Interest Income

Net interest income is the difference between the interest paid by individuals to obtain a loan (placement interest) and the interest received for opening a deposit or checking account (deposit interest).

Net interest income = Active interest income – Passive interest income

Trading (Legislative Decree Law 861-862)

Stock Exchange

The stock exchange is a marketplace where individuals interested in buying or selling shares or bonds can meet. It is represented by brokerage firms that facilitate the purchase and sale of securities through the interaction of supply and demand, determining the price.

Differences between Shares and Bonds

  • Shares: Do not have a defined price, are issued by corporations, represent part of the paid capital, generate dividends, cannot be converted into bonds, and may be issued in the stock market or over-the-counter (OTC) market. They grant the right to participate in general shareholder meetings and have a maturity date.
  • Bonds: Represent a portion of debt, are issued by corporations, provide a fixed return or interest, can be converted into shares, may be issued in the stock market, and do not entitle the holder to participate in shareholder meetings. They have a maturity date.

Trading Operations

Trading operations involve the buying and selling of securities purchased by members of a stock exchange.

Cash Transactions

Cash transactions involve the immediate exchange of securities at market prices, with the delivery of the securities occurring on the same day or within the settlement period (72 hours after the operation).

Forward Transactions

Forward transactions involve an agreement between the buyer and seller to settle the transaction on a future date, with a premium or discount applied relative to the spot market price.

Repos

Repos involve two simultaneous operations:

  • A spot transaction where the cash bidder acquires the title to a security or money.
  • A forward transaction where both parties agree to resell or repurchase the same security at a future date at an agreed-upon price and time.

Double-Counted Repos

Double-counted repos are similar to repurchase agreements but differ in the type of securities traded (usually bills and notes) and the collateral requirements.

Initial Public Offering (IPO)

An IPO is a mechanism that allows individuals or legal entities to purchase shares in a company registered on the stock exchange. This purchase grants the buyer decision-making capacity at that price, but only if the stock ownership is less than 25% of the company’s share capital.

Financial Law

Financial law governs the financial activities of the state and other public entities. It aims to systematically study the rules governing the economic resources that the state and other public entities can use to fulfill their objectives.

Financial Autonomy of the Law

Administrative Power

The administrative power argues that financial law is part of administrative law and therefore lacks autonomy.

Autonomist

The autonomist view argues that financial law is autonomous and governed by its own principles.

Difference between Financial Law and Administrative Law

  • Financial law focuses on the state’s financial activity, which is distinct from its administrative activity (i.e., income and expenditures for public needs).
  • Financial law differs in the goods used: money, while administrative law deals with trade goods and services.
  • Financial law aims to ensure state resources and use them effectively to meet public needs (money for financial law, services for administrative law).

Sources of Financial Law

  • Constitution
  • International treaties
  • Organic and ordinary laws
  • Ranks of law rules:
    • Legislative Decree
    • Emergency Ordinance
    • Decree laws
  • General regional standards
  • Local regulations
  • Decrees and resolutions