Autumn 2018, Issue 11

ISSUE NO. 15 11

PULSEBUSINESS.COM WWW.ISSUU.COM/ECONSOCYORK

IN FINTECH AND BEYOND

Rise of the machines; are graduate analysts being phased out?

ECONOMIC HISTORY Dr Thilo Huning examines key aspects of economic history. From trade agreements to geographical endowments.

A WORLD WITHOUT INTEREST RATES Is this so hard to imagine? Faz Kazmi analyses sections of the world of finance, the fuel PHOTOGRAPHED BYtaking IAN CASTANEDA for their engines, lets see the outcome....

APPLE VS SAMSUNG It's Batman vs Superman! How have these brands become such large competitors?

ISSUE NO. 15 11

PULSEBUSINESS.COM WWW.ISSUU.COM/ECONSOCYORK

IN FINTECH AND BEYOND

Rise of the machines; are graduate analysts being phased out?

ECONOMIC HISTORY Dr Thilo Huning examines key aspects of economic history. From trade agreements to geographical endowments.

A WORLD WITHOUT INTEREST RATES Is this so hard to imagine? Faz Kazmi analyses sections of the world of finance, the fuel PHOTOGRAPHED BYtaking IAN CASTANEDA for their engines, lets see the outcome....

APPLE VS SAMSUNG It's Batman vs Superman! How have these brands become such large competitors?

C O N T E N T S

06 08 10 12 14 IN FINTECH AND BEYOND

Tech replacing humans; fact or fiction? Anah Aishah talks about the developing tech industry and whether it is a viable alternative to the current finance industry as we know it.

APPLE VS SAMSUNG

It's Batman vs Superman! How have these brands become such large competitors?

ECONOMIC HISTORY- THE BIG PICTURE

Dr Thilo Huning examines key aspects of economic history. From trade agreements to geographical endowments.

THE INDIAN TEXTILE INDUSTRY

From cashmere to cash. Could this industry grow bigger or is working overtime?

A WORLD WITHOUT INTEREST RATES

Is this so hard to imagine? Faz Kazmi analyses sections of the world of finance, taking the fuel for their engines, lets see the outcome...

16 18 20 22 24 THE HISTORY OF MONEY

A timeline detailing the biggest milestones in the history of the heart of finance, MONEY!

THE GOLD STANDARD

A microscopic analysis of the monetary system that helped shape the world as we know it today.

DOES PAYING MORE FOR FUND MANAGEMENT LEAD TO A BETTER RETURN ON YOUR INVESTMENT? Paying more for less- the hidden truth behind fund managementÂ

THE INGENUITY OF INDITEX

From feedback to feed dog. How its unique business model helped it succeed.

ECONSOC EVENTS

See the back page for latests socials our society has to offer!

EDITOR'S LETTER The University of York Economics Society is proud to announce the latest edition of Equilibrium Magazine.

On top of the front cover topics, you will learn about the one of the oldest and largest industries in India and how it hasn’t become an industry of the past with advancements in technology and the power of finance. You’ll discover an in-depth analysis on the history of money as well as the gold standard. The hidden truth of fund management asking you, are they really worth their asking price? Moving to a more commercial outlook with the largest oligopoly in today’s global economy and why they need each other to survive. Finishing off with the history of the multinational clothing house ‘Inditex’ and its flagship fashion house Zara.

We hope you will enjoy this issue of Equilibrium and become more involved in our Economics Society here at York. If you have any question or comments about anything in this edition please contact the editors at di547@york.ac.uk or aog511@york.ac.uk.

We would like to thank all the students and staff members who wrote such interesting articles and thank you to the Economics Department for

Equilibrium Editor Debbie Idowu

sponsoring this magazine and supporting it throughout the years.

Equilibrium Editor Adam O'Grady 5

31/08/18

By Anah Aishah

In Fintech and Beyond Economics, finance, accounting and management are among the most popular subjects studied at universities worldwide; this can be credited to the financial sector’s high employability. Because of this, the number of students applying for graduate roles in finance has been increasing exponentially. Goldman Sachs receives nearly a quarter of a million applications a year for only 1900 graduate business analyst positions. While more and more young people take steps toward jobs in financial institutions, major banks and consultancy firms are shifting to innovative new technology, creating the looming threat of mass redundancy in the long term.

According to Oxford’s C. Frey & M. Osbourne, 47% of all jobs are at high risk of being automated within the next twenty years – and 54% of those jobs will be in finance.

While consumers may show a preference for the human touch; which in turn protects private and client facing roles; many graduate level positions are at risk of extinction. In light of this, there is a fundamental need not only for new jobs which utilise the skills of those who face unemployment, but for a revaluation of the nature of work.

A popular concern is that the traditional model of work is ill equipped to deal with the challenges that advancing technologies pose for modern economies. The past decade has seen workplaces move further towards collaborative working, creating work which relies upon both new tech

The financial sector is principally built on processing information; as such, a large proportion of the work done by people in the industry could be replaced by AI systems.

6

Financial advice is another area in which consumers are selecting AI technology for money management.

Investment in automated portfolios rose by 210% between 2014 and 2015, according to the research firm Aite Group. Robo-advice firms such as eToro and Money Farm advocate their AI systems on the basis that financial advice should be accessible to the masses regardless of their net worth. As such, larger advice firms such as James Hay are less concerned with the effect of robo-advice given that they target an entirely different market. Moreover, the majority of traditional firms are of the belief that AI technology is singular and would be unable to account for both the behaviour of an individual and the future of an economy.

and the people who use them. MJ Walton (President of the Industrial Relations Commission) suggests that in the long run a ‘dual labour market’ may emerge, with a primary market of individuals with job security and opportunities for advancement, while those in the secondary market will become increasingly vulnerable. It is essential that firms continue to unify technology and people in the workplace in order to prevent the emergence of this secondary market.

“People always talk about this stuff as displacement. I talk about it as freeing people to work on higher-value things” - Dana Deasy

Corporate finance has already seen a shift to technology while avoiding mass redundancy. In 2013, IBM’s ‘Watson’ was launched for commercial use both internally and at the insurance company Well Point.

The long run plan is for ‘Watson’ to branch out into other information-sensitive fields such as financial services and government agencies. Many firms seek to increase productivity by training their employees to work alongside emerging technologies, instead of being replaced by them.

Financial institutions have already begun using AI to automate tasks previously carried out by humans, such as algorithmic trading and risk management. In June 2016, JP Morgan launched a contract intelligence programme (COIN). Among other things, COIN successfully interprets commercial loan agreements and is capable of completing 360 thousand hours of file work in a matter of seconds.

While such innovation is considered highly beneficial for JPM’s customers, a number of lawyers and loan officers face redundancy. Dana Deasy, Chief Information Officer at JP Morgan said “People always talk about this stuff as displacement. I talk about it as freeing people to work on higher-value things”.

In light of new tech, the nature of financial work is rapidly changing and many anticipate that the fundamental responsibilities of popular graduate roles such as analysts will become obsolete if banks choose to rely upon new FinTech. Ultimately, technological advancement and innovation will continue to occur. Firms will continue to spend money on R&D, and the resulting job loss is inevitable.

Regardless of this, firms in the financial sector will always recruit intelligent driven individuals. With the changing nature of jobs, I am cautiously optimistic that technological advancement in the world of finance will only lead to less menial, more innovationbased opportunities for young graduates in the future.

On the other hand, an increased reliance upon technology may prove disastrous to large institutions. In August 2012, robo stock traders at Knight Capital Group lost $440 million dollars in just twenty minutes. The incident occurred after a technician forgot to copy a new retail liquidity programme onto one of its servers, demonstrating the need for an equilibrium point between the reliance upon technology and employees in the workplace.

7

APPLE vs SAMSUNG

A Complicated Relationship?

As we all know, Apple and Samsung are two of the world’s largest smartphone manufacturers and market leaders therefore making them serious competitors as they fight to dominate the smartphone industry. Despite being massive rivals, they have managed to keep their bitter rivalry aside and maintain their business relationship. You might even say, their relationship is equivalent to that of a love-hate one or possibly that of frenemies.

By Shamaila Abedin

02/09/18

Germany, France, Italy and the U.K. for patent infringement. Apple retaliated to this by filing counter suits.

When the patent war commenced in 2011, it initially resulted in $1 billion ruling in Apple’s favour. Afterwards, the 2012 verdict saw Samsung being ordered to pay $930 million to Apple which was then cut down by $382 million by an appeals court which then meant $548 million was due to be paid by Samsung. The cases were regarding a number of design and utility patents involving basic functions of a smartphone such as tap to zoom and the home screen app grid. However, the significant issue revolved around the question of whether Samsung copied

Their legal battle dates back to 2011, when the two companies have been involved in multiple patent lawsuits since 2011 when Apple first sued Samsung in the U.S. for copying features of the iPhone. Later on, Samsung sued Apple in South Korea, Japan, Australia, the Netherlands, 8

remained insulated. Over the years, these two firms have been sharing an extremely significant economic relationship by working as supply chain partners. Samsung is one of Apple’s biggest suppliers while Apple is one of Samsung’s biggest customers.

Samsung provides some of iPhone’s most important parts:the flash memory that holds the phone's apps, music and operating software; the working memory, or DRAM; and the applications processor that makes the whole thing work. Together these constitute of 26% of the component cost of an iPhone. For Apple’s iPhones 6s and 6s Plus, Samsung provided A9 chipsets for both of the phones and reports state that 40 percent of the A9 chipsets in iPhones 6s and 6s Plus are Samsung. iPhone X’s OLED screen was supplied by Samsung as well and a report by The Wall Street Journal states that Samsung made $110 from the sale of every iPhone X. Before the iPhone X was released, the WSJ estimated that the profits made by Samsung from the sale of iPhone X were anticipated to be so large it would result in the company’s revenues being driven up to $4 billion more than producing parts for the Galaxy S8. Samsung is the only company that can make the OLED displays, NAND flash, and DRAM chip in quantities required by Apple for its iPhones, the same components which mainly drive revenue for Apple.

According to The Wall Street Journal, these parts constitute a massive part of Samsung’s component business which generate 35 percent of the company’s revenue.

Apple. In the eyes of the jury, much to Samsung’s disappointment, in many ways, the answer to that question happened to be a yes. The war continued for seven long years after finally coming to an end this year in June when Apple and Samsung reached a settlement, the terms of which are yet to be disclosed.

This is actually how Samsung’s business model works: being a supplier of components of other companies causes Samsung to produce its own products more cheaply. When it comes to Apple, the firm is happy to let other rival firms handle the manufacture of its components so that it can concentrate on its strengths: designing elegant, easy-touse combinations of hardware, software and services.

The market of smartphones, being an oligopoly, happens to have an important feature known as interdependency of firms; a typical example being the stated relationship between Samsung and Apple. As seen in this article before, alongside being competitors, these two smartphone giants depend on each other for the growth and success of their businesses. Whilst their interdependency flourish over the years, let’s hope it is insulated from their bitter rivalry when the next patent war begins.

These two firms were involved in another major patent battle which started off in 2014 and only ended last year.

In that case, Apple won $120 million over violations of its slide-to-unlock patent and several others. The companies also filed more than 40 patent lawsuits against each other but these were dropped in August 2014 when they called for a truce.

Throughout all these continuous patent wars, the symbiotic relationship between Samsung and Apple 9

31/08/18

ECONOMIC HISTORY THE BIG PICTURE Every day we are confronted with new questions that require a deep understanding of international trade– Debates on tariffs, 'renegotiating’ NAFTA, talks of ǹo deal’ with the EU, and attacks on WTO. Where did these institutions come from, how can we understand their economic rationale, and how can we know what share of our living standards we owe to them? Understanding the origins and consequences of institutions, from early states to global parliaments, is the core of a growing branch of economic history.

I will point out some of the main insights and trends in this research. I hope to convince you that learning something about borders, position of airports, location of Roman cities, and the Congress of Vienna will make you a better economist–and allow you to understand the world around you.

This painting contains all elements that Rodrik (2003) identifies as the origins of economic differences: Institutions, productivity, trade, endowments, and ultimately geography

By Dr. Thilo Huning One of the most influential articles on this path was a 1995 article by McCallum. He finds a puzzling trade pattern for the US and Canada. Both countries share a common language, relatively similar culture, and a free trade agreement (NAFTA) abolishing tariffs between them. All these suggest that it does not matter on which side of the border a factory, or a consumer, is situated. It does. Controlling for size and distance, McCallum found trade between US states and other US states, and Canadian provinces and other Canadian provinces is 22 times larger than between US states and Canadian provinces.

Economic historians never found this very puzzling. Just because there has been a trade agreement in place for some years, the economic geography of countries does not instantly adjust to a new equilibrium–with factories

10

and consumers efficiently located. If you search for the largest airport in Europe per country, you won’t be surprised to find them in their capitals. This is not the case for Germany–the largest airport is Frankfurt.

Redding et al. (2011) trace this back to the German division. Before 1945, the airport in Berlin was the largest, like in any other country, but after it was walled in, West Germany built its hub in Frankfurt and extended it over the decades. History has permanently shaped economic geography. The existence of an international airport hub allowed Frankfurt to develop from a regional banking centre to one of the world’s largest financial hubs, not to forget the home of the ECB. A main reason for this is that transport infrastructure is expensive, and cannot be packed in a suitcase to move it to the most efficient location.

underestimating the role of geography. The Congress of Vienna (1815), Britain a deciding negotiator, put Prussia in the (geographic!) position to bring all other German states under its leadership.

It is this mechanism that Michaels and Rauch (2018) inspect. While the Romans left today’s France with a welldeveloped system of roads and cities, this was hardly the case for Britain. On this island, Roman cities were therefore more often abandoned in search for a better place to live, which was usually at the coastline. In France, the Roman roads trapped people inland. Innovations in maritime transport reduced the costs of sea transport relative to overland travels, and the British city network was better prepared–caused by worse initial conditions.

All these ideas built upon a long list of thinkers in the field of economic history that had a long-run and b̀ig picture’ focus on development. Jared Diamond, Eric Jones, Douglass North, Robert Fogel, just to name a few.

Econometrics, geographic information systems (GIS), and novel datasets, allow us to test their hypotheses. As factors for long-run development, they identified geographic endowments, international trade, institutions, but also culture, which all interact. Did you know that in some regions in Europe, the soil made it beneficial to use a heavy plow which could only be used by men, and that in exactly these regions gender-roles today are more unequal than elsewhere (Alesina et al., 2013)?

Rodrik et al. (2003), “Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development”, Growth 9(2), p. 131–165

Geography matters to the day, and trade costs matter immensely (Hummels, 2007). In the times of J̀ust in time’ production, every minute of queueing at borders can decide over the location of a factory. If we ignore the role of distance on trade, and believe there is no difference whether we trade with 22% of the world’s GDP on the other side of the Channel or negotiate d̀eals’ with countries we never traded that much anyway, and they are also thousands of miles away–well then Napoleon was right that the only thing we learn from history is that we do not learn from history.

But what does this tell us about the future? Well, we can tell that culture, trade, and institutions were not formed in a vacuum. In a paper with Nikolaus Wolf, I show how Britain unified Germany in the 19th century, potentially

11

28/08/18

THE INDIAN TEXTILE INDUSTRY

By Myoori Patel-Rivet

The Indian textile industry is one of the oldest and now one of India’s most successful industries second to agriculture. Having endured several threats such as a 20year long recession from 1960-80, westernization and the increase in low cost Chinese products; even the Chinese market is now bowing to the power of the Indian textile industry. It is impossible to ignore the success of this industry and therefore the reasons for such phenomenal longevity.

A common fear among the most traditional Indians is that the spread of western fashion trends has and will continue to cause a loss of tradition and culture; of which fashion is very much a part. This is far from the case as there is a higher global demand for Indian textiles, both traditional and modern. A migrating industry opens markets, creating more job opportunities domestically and for those skilled migrants who have decided to pursue life abroad. This creates the need for foreign Indian textile sellers overseas for those who continue to wear traditional Indian clothing. As fashion evolved to shirts, trousers, blouses and skirts during British rule, the Indian market also expanded and began to produce these articles showing just how flexible and diverse the market is now producing both types of clothing using a vast range of materials and methods.

'The textile industry alone provides just over 11% of Indian exports...'

China and Thailand are India’s primary competitors in the textile industry, however, it may be India itself hindering the current true potential of the industry. The challenges the country face such as growing urbanisation, rising disposable income increasing competition and limited supply of cotton are all ways to increase the demand and need for clothing made from man-made fibres. India have 0 excise duty on natural fibres such as cotton, wool and flax however, manmade material, fibre, filament and yarn have a maximum 12

Along with the government working to provide sustainable electricity and updated capital within the industry it has also implemented many short-term interventions to ensure that the industry worth US$108 billion thrives as much as possible. The textile industry alone provides just over 11% of Indian exports, therefore the government has introduced export promotion policies such as allowing 100% foreign direct investment in the sector as part of the Technology Mission on Technical Textiles (TMTT). This will allow for As one of the fastest developing economies in the world, India’s textile firms to rise in productivity as the investment India is seeing vast amounts of growth year on year with of foreign firms is spent directly on better technology annual GDP at 7.7% as of March 2018. Being a rapidly developing country means that some technology is outdated allowing the industry to cope with the growing demand and in need of modernization to improve efficiency. Although domestically and overseas. the highest quality tailors can churn out bespoke heavily embroidered sarees within 5 hours of placing the order, 60% India’s textile industry thrives as it produces the widest range of spindles in the industry have not been updated in over 25 of coloured fabrics in the world as well as catering to all years. Furthermore, as the country continues to develop the income brackets and despite being faced with larger barriers than competing countries, the resilience of India’s industry is government must cater to one of the world’s largest a result of its growing productivity. Although the industry populations. The country is currently trying to set up and dates back thousands of years and has developed massively maintain a sustainable electricity supply to 87% (2016) of the population. This means that many factories are prone to along the way, there are still many improvements to make as power outages, as electricity supplies are not yet faultless, the world becomes more technology dependent. However, needless to say that, currently employing 21% of India’s creating huge gaps of productivity which would almost workforce, the industry’s largest attribute is that it caters for certainly cause the industry to thrive further. both high and low skilled workers.

12.5% tax. The challenge lies in that it is only India’s government who seems to be implementing such duties whereas, China and Thailand do not place such a tax on the industry. Overall this could be resulting in the industry not performing at its best because it prevents firms in the industry from investing in more productive machinery or increasing wages for its employees.

13

A WORLD WITHOUT INTEREST RATES

By Faz Kazmi 28/08/18 Interest rates are arguably the most important economic instrument known to banking, finance, and the economics. They set monetary policy, control exchange rates, and is at its crux a fee for borrowing money. With financial markets dependent on such a system, is there a reality where interest is closer to fiction than fact?

Normally, to purchase a house you would go to the bank, take out a loan, and pay it back over time with interest.

In a hypothetical world without interest rates, what incentive is there to lend out money? The simple solution in this example would be that an individual would ask a bank to purchase a house. The individual could provide a down payment but ultimately the individual would become a tenant of the bank; paying monthly fees for accommodation i.e. rent.

To explore alternatives in a hypothetical interest-free world, we must first understand what interest rates influence. As mentioned previously, exchange rates and monetary policy are largely the most significant entities, but more notably, interest placed on savings and borrowed funds are one of the catalysts of modern-day capitalism driving modern-day investment. Interest rates have allowed ordinary citizens to become homeowners through mortgages, and are based in modern, complex trading strategies.

However, the individual could slowly buy the house back over time from the bank. This would create profit for the bank through rental fees and provides housing for individuals. The subtle difference in this example is the absence of any interest rates. As rent fees are significantly smaller than mortgage payments, it would give more financial flexibility to the tenant. Rent fees are also larger than interest payments so the bank would make more profit per mortgage essentially creating a win-win situation. This is because the tenant has the option to slowly change ownership of the house over time thereby becoming a homeowner in the longrun.

This article will not explore how modern economic systems may transition to an interest-free economic system but how economies would function with an established status-quo of zero-interest rate policy.

One key assumption of this scenario is that money would be limited to a means of exchange and nothing more. As explored throughout this article, this creates complications within commercial banking, savings, the stock market, and monetary policy. However, all areas of the economy may have an interest-free solution, which could arguably be a more desirable solution if implemented correctly.

Another example of loans in the commercial sector is within business banking. Without interest how would banks provide loans for investment and capital expenditure? The answer is currently in our media. The popular TV series ‘Dragon's Den' provides the solution to this – Venture capital. By allowing the bank to take a share of the profits or acquire part of the business (normally a minority stake), the bank would make a profit if the business performs well and so has an incentive to support it and encourage it to grow.

Commercial Banking Commercial banking today is dependent on the ability to charge interest. Surely without basic rates, mortgages, saving and other basic banking options for the public would cease to exist?

This would encourage banks to work in the best interest of their clients thereby providing a positive contribution to society. Initiatives of this calibre exist across the world. A famous example is the Grameen Bank in Bangladesh which has lifted entire communities out of poverty by supporting business plans and allowing for

Take a basic mortgage with a fixed interest rate.

14

There are drawbacks to an interest-free world for some.

Without interest rates, or "fees on the money" short selling and leverage would not be permissible. Ultimately, the only acceptable strategy when trading would be long-only.

This would dismantle the idea of a Hedge Fund which could lead to more stability in markets as Hedge Funds albeit sophisticated and intelligent in design, can cause noticeable movements in market volatility. Removing this aspect would reduce the overall volatility of stocks and thereby allow for companies to increase in value due to quantifiable increases in company value and not rampant speculation. Speculation could still exist, but financial institutions are likely to raise eyebrows on such activities if they have a stake on the profit made from such speculative investments as previously discussed. Interestingly, this also removes the functionality of Forex traders, and bond yields as interest are heavily involved in these two asset classes.

the private sector to flourish. Often called the rise of ‘socially responsible investing', this has grown substantially in developing nations and the Middle East.

The elimination of interest rates also comes with a silver lining. Without interest, loan sharks and predatory lenders, which often target the most vulnerable in society would no longer exist. Tackling the problem of high debt from the roots itself. Without institutions to provide such services individuals can never get into complicated financial situations. This has a wider effect on society, as exorbitant interest rates can rip apart families and lead to detrimental suffering for individuals and families.

Other initiatives can replace the existence of loan sharks.

The explosion of micro-credits and credit unions can assist low-income communities with financial support. By sharing out the risk for a loan over multiple lenders, the borrower must only pay back small increments of money to each lender, but the risk is spread so widely that if the borrower defaults the impact on society is negligible.

Monetary Policy Perhaps the biggest elephant in the room is monetary policy.

Monetary policy consists of two parts. Base interest rate manipulation and the ability to change the money supply. If interest rates cannot be applied, then would the economy be stuck in a ZIRP (zero-interest-rate-policy) system? Where inflation cannot be managed, and a liquidity trap exists.

Savings Lending money may be possible and lead to positive outcomes for society but what incentive is there to save money in a bank? If interest rates do not exist, then one cannot receive savings rates. However, the alternative is simple where the bank would invest in assets and ideas that produce a profit and then provide you with a cut. This may put-off people as there is no guarantee that a profit may be created, however, the overall return on savings would be significantly higher than the typical savings rates on the market.

However, as mentioned by Eric Monnet in his paper titled ‘Monetary policy without interest rates', the elimination of interest rates may lead to price stabilisation! Monetary policy would not become non-existent, unconventional methods can be implemented such as open market operations (e.g. QE) and money supply changes could be used to tame the economy.

The reintroduction of a reserve ratio would create further financial stability in a nation. Fractional reserve banking would still exist and be encouraged by providing steady flows of liquidity into the economy. Overall, monetary policy would still influence currencies, only now, from a supply side.

Lending money may be possible and lead to positive outcomes for society but what incentive is there to save money in a bank? If interest rates do not exist, then one cannot receive savings rates. However, the alternative is simple where the bank would invest in assets and ideas that produce a profit and then provide you with a cut. This may put-off people as there is no guarantee that a profit may be created, however, the overall return on savings would be significantly higher than the typical savings rates on the market.

Many aspects of banking and the economy have not been discussed and would likely take many days to cover.

Theoretically, it is possible to have an interest-free society through a variety of innovative solutions. As funds are freed up from speculative trades, socially responsible investing would rise, making the idea of an interest-free world rather desirable.

Stock Market

There are drawbacks to an interest-free world for some.

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A

B R I E F

H I S T O R Y

O F

By Adam O'Grady and Diana Osipov 28/08/18

9000-6000 B.C

MONEY

These ages had a very simple philosophy: If you wanted something you could have it, if not you had to fight for it or barter for it. The word ‘Barter’ simply means ‘to exchange’.

However, it had several problems because both goods had to be of roughly the same value and there had to be a be a willingness to swap from both sides of an exchange.

6000 B.C

As time went on, society developed and so did the need for money. Religious activities required the need for money, for example gold and silver were given as gifts for gods or the hierarchy. Legal activities also played a major role, when bribing for arranged marriages or as a reward for killing someone.

1200 B.C By the 12th century BC money was still an early concept and only existed in China. They used cheap metal coins as a medium of exchange. It was difficult to date these coins exactly because Chinese emperors didn’t allow their names or heads to be milled onto coins.

600 B.C Coins didn’t arrive in the western world until around the 6th century BC. These were produced by the Greeks in Ionia in the western part of Turkey. The western world overtook China in the coinage industry and took the invention much further with more efficient milling techniques. This is because China used base metals and milling techniques that were easy to counterfeit. Turkish coins were made with precious metals, gold and silver making them harder to forge.

330 B.C

Coins became widespread throughout Turkey. This was to create a more stable financial structure, with regards to gold being a scarcer metal than silver. Alexander the Great in around 330 BC fixes the ratio of silver to gold as 10 to 1.

200 B.C There was stability in the coinage system for hundreds of years with the development of the Roman empire. Supremacy was achieved through a number of wars such as the Punic wars (264 BC to 146 BC) and the conquest of Gaul (58–50 BC) in which Julius Caesar became one of the first builders of Europe ruling even the northern lands. As a result, the use of silver and gold coins spread throughout Europe.

765 Britain still far behind, was using swords as currency until around 765, which marked the date that the silver penny was born. The introduction of money in the western world allowed for financial development. For example, the collection of taxes and rent to landlords were new concepts that are still used today but could only have been successful with the introduction of money.

910-1275 Coins were a good starting point however when dealing with large transactions they became very inefficient so paper notes became more of a viable option. Marco Polo on his travels coming back from China in around 1275 discovers yet again China had been ahead of the Europe in the use of paper money. China had been using paper money since 910. Anyone who counterfeited notes were executed. It gave Chinese rulers greater control of their economy as notes were authenticated by Chinese officials.

1300 Marco Polo documented his discoveries in his book “The Travels of Marco Polo”. This encouraged English bankers to use bank notes as they were lighter for trade deals abroad.

Bank notes were also used as receipts as “promises to pay” " to customers who had deposited their gold and silver coins for safekeeping. As a result, people began to use notes as a more convenient means of payment. That is how banknotes came into existence throughout much of the 13th century.

13 16

'With war comes increased demand for money through financing arms races and repayments.'

1492 In 1492, Columbus hoped he would be able to bring gold and silver to America. However, he created a path for the Spanish conquistadors like Cortez and Pizarro to forcefully take gold from the Aztecs and the Incas in Mexico and Peru respectively.

The Spanish approximately killed around 15 million people in 40 years with workers being forced to work in gold and silver mines to the death. The indigenous people couldn’t understand this violent hunger for gold or silver.

1500 During the 1500’s, much of this gold and silver was transported from South America but was ceased by buccaneers most notably from The Netherlands and Britain. They brought productive spending power into northern Europe from areas in Italy to London and Amsterdam. Due to large influxes of gold and silver, there was significant inflation. By 1600 money was worth a quarter of its value in 1500, and prices of goods were around four times higher.

1694

With war comes increased demand for money through financing arms races and repayments. This logic reached its pinnacle in 1694 with the 9 years’ war. King William III of England needed huge sums to fight the war and the English Parliament was unwilling to increase taxes. A Scotsman called William Paterson, London businessmen, persuaded the King to let them set up a bank to lend him money. Although it was a privately-owned, the bank was called ‘The Bank of England’.

1782 The next milestone in the history of money was found in North America. 1782 marks the date for the first commercial bank located in Philadelphia, Pennsylvania. The bank, which was jointly owned by the federal government and private stockholders, was a national commercial bank serving as the bank for the federal government and operating as a regular commercial bank competing with state banks.

1874 In 1874, the gold standard was founded following the collapse of the Latin Monetary Union. This meant the suspension of silver. The standard acted as monetary union.

See page 18 for more information on the gold standard.

1929 1929 marks the year of stock market crash leading to the great depression in 1930. It started on the 24th of October commonly known today as 'Black Tuesday'. This was when share prices fell due mainly to the loss of consumer confidence. It signified the end of the speculative bubble of the roaring twenties.

1999 The Eurozone was founded on the 1st of January 1999.

There are currently 19 out of the total 28 EU countries who have adopted the Euro. This means they will need to have asymmetric business cycles meaning they need to be at the same economic stage. This is due to the 19 countries needing to adopt the same monetary policy, a policy that controls money supply and interest rates. This makes it much harder for a country to change the value of its currency.

2008 The other global recession following the stock market crash in 1929 was the 2008 financial crisis sparked by the housing bubble due to the subprime mortgage crisis. This is when more and more people defaulted on their mortgages due increasing interest rates, originally disguised as ‘teaser rates’.

This means banks holding assets known Mortgage Backed Securities (MBS) became worthless following the defaults.

Many banks had to be bailed out and one disappeared altogether, ‘Lehman Brothers’.

PRESENT DAY The world moves has moved onto cryptocurrencies such as ‘Bitcoin’. It acts as an alternative currency. They are used to secure financial transactions and verify the transfer of assets. Cryptocurrencies use decentralized control meaning they aren’t governed by authority. This aspect coupled with its difficult nature to track makes it a popular choice for dark web users.

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04/09/18

The History of the Gold Standard

By Adam O'Grady

In today’s modern times we buy and sell in pounds. There are a few main reasons why this happens. It’s simply because we trust the pound. It has a store of value that stays stable enough to not need to hedge future risk on investments or payments. For example, borrowing is something we take for granted because lenders can confidently assume that that lenders will able to pay back debts, knowing the pound won’t fall in value. Also, it allows a certain level of comparison between goods creating price transparency which speaks for itself as well as in economics jargon.

The gold standard works in the same way. Firstly, you should know that there are two types of the gold standard, the 18

gold bullion standard where you could buy gold bullion (gold before coinage) for a set amount of domestic currency like paper money. The second was the gold exchange standard which was used by countries without large gold reserves and was most commonly used because it allowed countries to fix their exchange rate with another country that uses the gold standard meaning the exchange rate had a fixed external worth in terms of gold that’s independent of the inherent

'In economics jargon, when a country fixes its exchange rate to an amount of gold it’s called a 'de facto' gold standard.'

value of the exchange itself. In economics jargon, when a country fixes its exchange rate to an amount of gold it’s called a 'de facto' gold standard. This means the exchange rate has a fixed external worth in terms of gold that’s independent of the inherent value of the exchange itself.

more stable countries and were trusted to not default on debt. Many smaller countries joined the standard to in order to still maintain trade deals with existing members. Members having the same currency meaning they will automatically benefit from reduced transaction costs which promoted increased international trade and hence economic growth.

Before, the gold standard was something called the This was especially beneficial to France and Germany who bimetallic standard. As the name suggests it was a medium were at the time were struggling economically due to the of exchange using two metals which were gold and silver.

Franco-Prussian war of 1870 lasting about 1 year. Finally, the The most famous example of this in Europe was the Latin economic historian Eichengreen explained that the gold Monetary Union (LMU). This was a monetary union founded exchange standard has a self-correcting mechanism for

by France, Belgium, Italy, and Switzerland in 1865. There was trade deficits and surpluses, through the use of exports and an interchangeable exchange rate between gold and silver. imports. For instance, a country with a trade deficit buy At first, it reaped similar benefits of what we would call a more than they sell, they will experience an outflow of gold. monetary union such as eliminating transactions costs and With less money circulating domestically it will cause a fall in price transparency. However, a major flaw of the LMU was domestic prices promoting exports and a trade balance. the price fluctuations of precious metals due its intrinsic value, it’s seen as an asset that stores its value well. When It wasn’t all good news for member countries. There were investors feel for example during a recession, they will buy some downsides to the gold standard. Firstly, being a gold for as it has a low risk of depreciation and vice versa member meant you automatically sacrificed your monetary for economics booms. This means it’s difficult to maintain the policy, the mechanism that controls money supply and bimetallic exchange rate. When the LMU was founded it was interest rates. This is a popular tool used to stabilize an at the end of the price boom of silver relative to gold. By economy to flatten out the business cycle a changing 1874 silver was suspended indefinitely due to arbitrage, the interest rates will affect the borrowing rates and exchange decreasing value of silver made it profitable to mint silver in rate. As a result, to be a long-term member you needed to exchange for gold. This lead to the de facto gold standard be synchronised with other members on the business cycle. for the original members of the LMU. This is one of the main problems with Greece is encountering being a member of the Eurozone today due its economy 'Eichengreen explained that the lagging so far behind other western economies such as gold exchange standard has a Germany and the UK.

self-correcting mechanism for trade deficits and surpluses...'

Finally, one of the other major problems with gold standard was its effect on countries during the interwar years.

The United Kingdom has also experienced silver shortages Following World War One Britain failed to consider inflation leading to silver suspension. The bank charter act of 1844 of its currency so after the war it returned to pre-war transferred power from British banks to the Bank of parities. This led to the UK having an overvalued sterling England. Overall, British banks notes were fully backed up by creating a loss of competitiveness further reducing economic gold rather than the bimetallic system. Well done for getting growth during already troubled times for participants of to this point!

World War 1.

After a ‘brief’ explanation of the precursor to the gold standard we can explore the advantages and by-product of the de facto gold standard.

Joining the gold exchange standard shortly after the LMU meant members were treated to reduced costs of borrowing. This was because members were generally richer 19

I hope this has whet your palate for economic history and clarified some of the key developments of the gold standard.

In my opinion, it was the collapse of the bi-metallic standard within the LMU that helped fuel the power of the gold standard because many economic super powers adopted the de-facto gold standard fuelling many more countries membership due to the attraction of global and freer trade.

costs are justified. As a result, a prospective client is now faced with two options in order to make a smart decision: either research desired OEICs which are managed actively and priced reasonably according to the return on investment or opting for an ETF that charges as low as 0.03% compared to the average 1.13% for OEICs.

11/09/18

Does paying more for fund management lead to a better return on your investment?

The main point is that when looking at an Income fund, you have to employ a holistic approach. This includes various performance ratios (eg. 5 yr return) as well as examining the fund in the wider context such as its bias in terms of investing style. A step further would be studying the activity index and the nature of shifts in position; that is whether the changes in a holding are due to fluctuations in its market price or active managing.

By Valentin Plesa

When considering a more expensive fund, the higher costs are directly accountable for lower returns. This is due to the management fee that takes out a considerable proportion of the return attributable to an investor. Moreover, relatively high fees are also closely correlated with funds that leverage their brand and name to attract customers, which also do One of the basic features of a competitive market is that not manage to outperform the benchmark by a great margin. goods are generally priced according their worth. Simply put, So do your research! you get what you pay for. Following this premise, funds that charge high rates for management should provide investors A notable fund that I personally admire is Evenlode Income with higher returns compared to lower-priced ones.

Fund, one of the top performing funds of the year. Set up in However, the current fund landscape begs to differ.

2009, Evenlode is a fairly new fund which has had an impressive run with a current cumulative performance of 'When considering a more expensive 206.9% since launch compared to the 113.2% of the fund, the higher costs are directly benchmark. Having caught the eye of investors, the fund has recently had to implement a soft closure by imposing a 5% accountable for lower returns.' initial charge on new investments. This is due to their assets With over 400 registered Open-Ended Investment skyrocketing to more than £2 billion in 2016 from £720 Companies in the UK, an investor’s main objective should be million and would soon have the fund size threaten the whether their fund of choice is indeed actively managed and investment style utilised of investing in mostly small-cap can get the same return on an investment with a lowercompanies. priced fund compared to a higher-priced one. Along with the rise of cheap passive investment vehicles, such as ETFs, Holding 38 investments, it focuses on long-term growth and actively managed funds are now subject to an ever-mounting does not shy away from taking active bets. The management level of scrutiny in proving their value and edge against an cost it charged in 2017 is 0.95% which situates Evenlode index tracker. This translates into increased focus on below the national average of 1.13%. Looking at its determining the nature of churning in these funds and if it’s investment style, it prioritises free cash flow as a crucial simply trying to look busy. Or whether it qualifies as an metric, which ensures it would cover the dividend stream. ‘index-hugger’ which means it features most of the same major holdings as the benchmark (i.e. FTSE100) and doesn’t However, always remember that past performance is not an make any active bets. Or whether commissions and dealing indicator of future performance. So choose wisely!

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02/09/18

The Ingenuity of Inditex

By Debbie Idowu

Inditex owner of not just Zara but 7 other major brands, its presence in 96 markets in all five continents, with more than 7,00 stores, makes it the world’s largest fashion group.

The chain of stores grew rapidly, and in 1985, Inditex was created as the head of the group of companies.

Between 1986 and 1987, the group installed a new and modern distribution system that could meet the needs of its expected rapid pace of growth.

In 1975 Amancio Ortega, then the owner of a small garments making factory, now the 6th richest man in the world, decided to open the first Zara store in A Coruña, Spain with his wife Rosalia Mera. The first shop was a success, a fact that encouraged Ortega to open more Zara stores in the main Spanish cities.

In 1988 Zara opened its first store across national borders, in Oporto, Portugal. After that, the company put its Zara stores in New York (1989) and Paris (1990). Three years later, Inditex founded retailer Pull&Bear and bought 65% of the Massimo Dutti Group, 21

obtaining 100% in 1995. In 1998 the company launched Bershka, a retailer aimed at young women and teen girls. After one year, a new retailer was acquired, Stradivarius. The company then had its IPO in 2001, after that it launched Oysho, a lingerie retailer and moved its headquarters to a new building in Arteix. By this year, it was present in more than 35 countries: the international growth was remarkable.

managers are told to listen to what customers want and are looking for on the racks, and to report that information to HQ. The commercial team then works with designers to develop new products. The new styles are prototyped in just 5 days and 60% of the manufacturing happens locally, which is to say in Europe or Northern Africa, to speed up the process. Inditex owns factories in Spain and outsources production to factories in Portugal, Morocco and Turkey. The rest of the manufacturing is done in China, Bangladesh, Vietnam and Brazil. H&M, one of its competitors still designs 80% of its clothes months in advance and the bulk of its production in Asia. The trendiest clothes are made close to HQ, so that the production process only takes two to three weeks in total. Essentially what Inditex does is they listen to what consumers want right now and deliver it quickly. The high labour costs are offset by the ability to deliver the product efficiently and rapidly. This system minimizes the inventory cost, and it’s a paradigm of Just-in-time.

'Simply put, the reason for Inditex’s success is short lead times: the ability to offer designs to the customer that other retailers do not yet have… Think of Zara not as a brand, but as a very speedy chameleon that adapts instantly to fashion trends.' - Anne Critchlow Two years later, Inditex opened a second logistic centre in Zaragoza, Spain, to support the distribution hub in Arteixo. In this same year Zara Home opened, launching Inditex retailer number 7. By 2004, the group had over 2000 stores and had expanded its global footprint to 56 countries in Europe, America, Asia and Africa. After four years, Inditex group launched the retailer number 8, Uterqüe, which specialized in accessories and other fashion extras. In 2010, Zara started to sell its products online, and by 2011 the online store was available in 16 European countries and all Inditex’s brand were available online. The company as recently stated that it plans to sell products from all its brands on the Internet around the world by 2020.

Anne Critchlow, an analyst at the investment firm Société Générale, told Wall Street Journal: Simply put, the reason for Inditex’s success is short lead times: the ability to offer designs to the customer that other retailers do not yet have… Think of Zara not as a brand, but as a very speedy chameleon that adapts instantly to fashion trends.

Another cost capability is the lack of advertisement. It does not indulge in flashy campaigns like some of its competitors or team up with fashion designers such as Stella McCartney or Alexander Wang. The company invests heavily into the excellent and strategic location of its shops and the impressive and attractive design of its window displays. For example, in 2011 the company paid US$324 million to buy a space at 666 Fifth Avenue in New York, a building best known for being the most expensive ever sold in Manhattan. As a result, Inditex saves a lot of money that is dedicated to other areas of the business, such as the constant improvement of the distribution and offering a competitive price to its customers.

Inditex's success to date is all to do with how it doesn’t follow traditional fashion marketing and business strategies.

A traditional ready-to wear fashion company sends its designs to factories in countries where labour is cheap such as China and India. The clothes are then shipped back to stock the stores in spring and autumn, with smaller shipments during the year. However, a brand at Inditex relies less on formal marketing reports and sales figures but on observational research. Store

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Econsoc Freshers' Week Week 2 Monday- BBQ Tuesday- Bar Crawl Friday - Film Night Sunday- Club Night at Revolution

Econsoc Socials Week 3 - Psychsoc vs Econsoc in Pubgolf Week 5 - Law Social

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