I need help for my final exam on the unit Current issues in banking and finance AFIN8099
Question 1 (15 marks) This question is based on the case study titled “Deconstructing Momentum” that was uploaded on the 12/06/2020 on ilearn in your hedge fund folder. This was communicated via an announcement around the same time. You were required to read it beforehand as part of your preparation. a) As part of the interview process in getting your dream job as a quant trader, you are presented with Figure 8 below and asked to explain what is being captured and illustrated. As a guide your response should discuss how the signal is composed, what happens in the short term, medium and longer term. Any other comments? (5 marks) b) After commencing your first dream job in the hedge fund industry your quant manager comes to you and asks for your opinion about figure 10. Could you briefly explain what is happening there? As a guide you may also compare this to figure 8 given that your interview was only last week. (5 marks) c) After successfully navigating through the first 3 months in your quant role your manager is impressed on how quickly you have learnt about Momentum Signals and you are now promoted to the Emerging markets equities desk. Based on figure 18 please provide an explanation of what is happening in the graphs? (5 marks) Question 2 (15 marks) a) What are the 2 approaches you can take to formulate Capital Market Expectations? (2marks) b) Based on your response to part (a), name three areas of focus under each approach (number your responses with 1, 2, 3 for each expectation). (3 marks) c) In your earlier finance courses, you have learnt to apply to dividend discount model or the Gordon Growth model (DDM). Outline 3 factors that make using the DDM more stable in the Developed Market (DM) and 3 factors that make in challenging in Emerging Markets (EM)? (6 marks) d) Name and discuss two (2) broad factors that one must look into before committing funds to Emerging Markets? Outline the factors using 1,2, 3 and provide maximum 2 sentences to discuss each. (4 marks) Question 3 (14 marks) a) Outline three motivating factors behind investing in Alternative Assets? (3 marks) b) Name five (5) due diligence factors that you need to cover while investing into an Alternative Asset? (5 marks) c) Outline 3 advantage of investing in Real estate investment trusts (3 marks) d) Outline 3 disadvantages of investing in Real estate investment trusts (3 marks) Question 4 (15 marks) Neo-banks have been one of the fastest growing segments of the venture capital funding landscape over the last 2-3 years. On the first day of your job at Macquarie Capital you are asked to read the following article as part of a report on the neo-bank industry. To make it easier your manager has noted the key areas to be covered by giving you questions at the end of this article. You may do additional only research as part of your response, but you need to be within the set word limit. The ‘Neo-Banks’ Are Finally Having Their Moment (New York Times) By Nathaniel Popper Nov. 20, 2018 SAN FRANCISCO — After the financial crisis 10 years ago, unhappy customers were expected to flee the megabanks for smaller competitors. It didn’t happen. And the big banks became even more entrenched. Now another wave of alternative banks are at it again, and they say they’ve learned from the mistakes of the upstart banks that tried — and failed — before them. Chime, the biggest new name to pop up, has opened two million fee-free online checking accounts and is adding more customers each month than Wells Fargo or Citibank. That has inspired a crop of newer start-ups, like Empower, which started its first fee-free online checking accounts, with lots of digital bells and whistles, in October. Venture capitalists are pouring money into American start-ups that are offering basic banking services — known as neo-banks or challenger banks. In 2018 so far, American neo-banks have gotten four times as much funding as they did last year, and 10 times as much funding as they did in 2015, according to data from CB Insights. Big players from outside the consumer banking industry, like Square and Goldman Sachs, are also moving in. “In consumer banking, you have what is one of the largest industries in the United States, in terms of profits, and at the same time one of the least disrupted industries, and the most unpopular with consumers,” said Andrei Cherny, the founder of Aspiration, a neo-bank that has attracted nearly a million customers. “Those three things create a perfect storm for disruption.” The persistent unpopularity of big banks has been a boon to the newcomers. And they are helped by a new attitude among financial regulators who have grown more comfortable with online banking and young customers who have no hesitation about cashing a check or sending money on a phone. That doesn’t mean that building a profitable business will be easy, as the first neo-banks, like Simple and Moven, discovered. Establishment banks have big budgets to fend off challengers. And the services that many neo-banks are starting with, like checking and savings, are not very profitable. Chime and its ilk all want to eventually move into lending and other businesses. There is, however, a growing conviction that banking is set to change. The consulting firm CG42 said in a recent report that it expected the 10 largest banks would lose $159 billion in deposits to smaller competitors over the next year. “Everyone is looking at cards and bank accounts as the next battleground,” said Lindsay Davis, an analyst covering financial technology companies for CB Insights. The new financial outfits are trying to replace the old, branch-based way of banking with a mobile phone-friendly account that does away with the fees that have made banking giants so unpopular. Andrea Johnson, a dispatcher for a utility company in Michigan, switched to Chime after her old bank, PNC, charged her an overdraft fee as a result of another fee from the bank that had emptied her account. “That blew my mind: one fee leading to another fee,” Ms. Johnson, 35, said. “They are going to find a way to nickel-and-dime you to death.” Since she switched to Chime, Ms. Johnson said, she hasn’t missed PNC’s physical branches and has appreciated some of the start-up’s perks, like getting money from her paycheck two days early. Chime, which has 100 employees in downtown San Francisco, makes money by collecting a fee from Visa every time its customers use Chime’s debit card to make a payment. The company has received $105 million in investments from venture capital firms. “If you look ahead five years, there’s no way there will be a financial services industry that is charging consumers $30 billion a year in overdraft fees,” said Chris Britt, the chief executive of Chime. “We aim to shake that up, and I think a lot of other consumer companies will be doing the same thing.” The deposits going to start-ups like Chime and Aspiration are still a drop in the bucket compared with the trillions of dollars in accounts at places like JPMorgan Chase and Wells Fargo. New companies in the United States are also lagging those in places like China and Britain, where a much greater proportion of consumers have already fled to upstarts. But fast-growing online banks in Britain like Monzo and Revolut are providing a template for American start-ups. Both companies have said they want to move into the United States. “If you look ahead five years, there’s no way there will be a financial services industry that is charging consumers $30 billion a year in overdraft fees,” said Chris Britt, the chief executive of Chime. “If you look ahead five years, there’s no way there will be a financial services industry that is charging consumers $30 billion a year in overdraft fees,” said Chris Britt, the chief executive of Chime.Credit...Cayce Clifford for The New York Times Banking regulators recently signaled that they will give the first banking charter to a neo- bank — Varo, a San Francisco start-up that is offering fee-free checking accounts without any minimum balances. Another national bank regulator, the Office of the Comptroller of the Currency, has said it plans to begin offering special fintech charters to new companies that want to handle money. These charters will allow start-ups like Varo to operate without relying on an established bank to hold their money, which adds significant costs. Most of the new companies have kept their money and run transactions through partner banks, generally smaller regional banks that don’t have the money or the expertise to build out their own digital services. Traditional banks are recognizing the threat. Wells Fargo is testing an app-based banking product, Greenhouse, that does away with overdraft fees and service fees. JPMorgan Chase already offers a similar app, Finn, aimed at younger customers and announced last month that it was building a new fintech campus in Silicon Valley. The banks are struggling to adapt because they have built an expensive infrastructure of local branches and have become increasingly reliant on revenue from fees. Surveys have shown that a wide array of fees, for everything from A.T.M. use to checking account maintenance, have been steadily rising in recent years. The big banks have also held on to the interest payments they get rather than passing them along to depositors. That has created an opening for online companies. Empower is paying its customers 2 percent for deposits, compared with the 0.01 percent that Wells Fargo is offering. One of the most unexpected new competitors has been Goldman Sachs. Goldman took its first step with an online lending product called Marcus. It has combined that with an online savings account that is offering customers 2.05 percent for deposits, and executives have signaled that they plan to expand to a full-service online bank. Several other established companies are also moving in. Acorn, which attracted four million customers to its investing app,