The Finatical
Week of January 25th, 2022 - Blockchain in Finance, Gas Prices, Interest Rate Hikes
Upcoming Events
Derivatives and Financial Modeling with Francis Longstaff
Youth Financial Summit
Finatic is proud to announce that we are hosting The Youth Financial Summit, the first-ever all inclusive event for young finance enthusiasts.
Hosted online through Zoom on Saturday, February 26th, the summit allows participants to learn about hot financial topics, win cash prizes, compete against students from all over the nation, and network with like-minded individuals.
The summit includes over $2000 in prizes, a guest appearance by billionaire and legendary investor Howard Marks, and a presentation by distinguished UCLA finance professor, Avanidhar Subrahmanyam.
The summit will include a portfolio construction competition where competitors will have to create a portfolio that balances risk and reward that will then be graded through a variety of metrics and a portfolio back-tester. A combined $750 will be given in prizes.
The summit will also include a Quiz Bowl where participants can answer rapid-fire questions individually or in a team of up to 4 on a wide variety of finance questions. A combined $1000 will be given in prizes.
Note: Registration and participation is completely free. Attendees are not required to take part in every competition or speaker event.
Click below to learn more about the event and access the official event website.
FinaticTips - Learn about Blockchain
A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in groups, known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled. A database usually structures its data into tables, whereas a blockchain, like its name implies, structures its data into chunks (blocks) that are strung together. This data structure inherently makes an irreversible time line of data when implemented in a decentralized nature. When a block is filled, it is set in stone and becomes a part of this time line. Each block in the chain is given an exact time stamp when it is added to the chain.
These are the following ways in which blockchain can be used and have a major impact on the financial sector:
Banking
Perhaps no industry stands to benefit from integrating blockchain into its business operations more than banking. Financial institutions only operate during business hours, usually five days a week. That means if you try to deposit a check on Friday at 6 p.m., you will likely have to wait until Monday morning to see that money hit your account. Even if you do make your deposit during business hours, the transaction can still take one to three days to verify due to the sheer volume of transactions that banks need to settle. Blockchain, on the other hand, never sleeps.
By integrating blockchain into banks, consumers can see their transactions processed in as little as 10 minutes—basically the time it takes to add a block to the blockchain, regardless of holidays or the time of day or week. With blockchain, banks also have the opportunity to exchange funds between institutions more quickly and securely. In the stock trading business, for example, the settlement and clearing process can take up to three days (or longer, if trading internationally), meaning that the money and shares are frozen for that period of time.
Given the size of the sums involved, even the few days that the money is in transit can carry significant costs and risks for banks.
Cryptocurrencies
Blockchain forms the bedrock for cryptocurrencies like Bitcoin. The U.S. dollar is controlled by the Federal Reserve. Under this central authority system, a user’s data and currency are technically at the whim of their bank or government. If a user’s bank is hacked, the client’s private information is at risk. If the client’s bank collapses or the client lives in a country with an unstable government, the value of their currency may be at risk. By spreading its operations across a network of computers, blockchain allows Bitcoin and other cryptocurrencies to operate without the need for a central authority. This not only reduces risk but also eliminates many of the processing and transaction fees. It can also give those in countries with unstable currencies or financial infrastructures a more stable currency with more applications and a wider network of individuals and institutions with whom they can do business, both domestically and internationally.
Smart Contracts
If you are even remotely performing in the world of investment and trading you must have heard about pre-determined investment contracts like futures and options. While negotiating such contracts, there are certain fees and processes typically associated with the use of a notary, a third-party mediator, or attorneys. Blockchain eliminates the need for such miscellaneous expenses through smart contracts.
A smart contract is a computer code that can be built into the blockchain to facilitate, verify, or negotiate a contract agreement. Smart contracts operate under a set of conditions to which users agree. When those conditions are met, the terms of the agreement are automatically carried out.
FinaticTrends - Financial Trends
Russia-Ukraine Crisis Affecting Gas Prices
Currently, there are growing tensions between Russia and Ukraine over the energy markets, and the uncertainty over the markets could mean a continued period of high gas prices in Europe. If the crisis between the two nations is to linger, then the gas prices in Europe that reached an all time high last year will continue to surge further. The tension between the two nations has increased so much over the past few months that Russian troops have gathered at the border with Ukraine.
U.S. representatives and NATO (North Atlantic Treaty Organization) members indulged in several days of high stakes discussions with Russian officials, with no resolution on the crisis and this ongoing crisis has also led to the U.S. potentially imposing sanctions on Russia to stop the Kremlin from invading Ukraine. According to Capital Economics, if the U.S. decided to impose sanctions on Russia, then European gas prices will exceed the peak of 180 pounds per MwH of last year. The gas supplies of Russia have continued to decline as their imports of gas have been down by 38% and stockpiles down 21%.
Interest Rates Increasing In Response to Inflation
Jerome Powell, the Federal Reserve Chair, has warned Americans that high inflation could potentially make it harder to restore the job to full capacity. He mentioned that the Federal Reserve will raise their interest rates faster than it currently is, as the nation needs to stem surging prices of goods and services. Households across the U.S. are having to pay more for food, gas, rent, autos, etc., which has put pressure on the Feds to control the inflation that is occurring in the economy by raising interest rates to prevent the amount of borrowing and spending of money.
It is necessary for the U.S. economy to continue its growth for a long period of time so that the majority of Americans can go back to work as soon as possible and in order for this to happen, it is necessary that the inflation is controlled before it becomes too late to deal with it. If the prices of goods and services continue to increase then the Federal Reserve will be forced to raise interest rates drastically, threatening the hiring and growth of people working and getting jobs. Families that are low-income have suffered the most due to the recent surge in inflation because it has wiped out the pay increase that many received in the past.
Financial Guidance
“Do not save what is left after spending; instead spend what is left after saving.” ― Warren Buffett
Money Fact
U.S. paper money is not paper. It's cloth. In Ben Franklin’s day, people repaired torn bills with a needle and thread.