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Financial Innovation

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by

Mitchell Murray

on 13 November 2014

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Transcript of Financial Innovation

1980
1990
Current Day
Nov 13, 2014
995
Financial Innovation
Swaps (1980s)
Options (1970's)
Crowd Funding (2006)
First Bank notes issued in China 995 AD
1214 First government bonds issued in Italy
1602 first organized stock exchange in Amsterdam
1774 first mutual fund established in Amsterdam
Bitcoin
Namecoin
Litecoin
Peercoin
Ripple
Mastercoin
Primecoin
Dogecoin
Darkcoin
Aurroracoin

Existing Crypto Currencies
Crypto Currencies
What is a Crypto currency?
A crypto currency such as Bitcoin is a digital currency derived from cryptography, networks and open source software. Much like the Canadian dollar, Crypto currencies can be used in the exchange of goods and services.
Innovation
Controls against fraud

CDSs and the 2008 Crises

Pre 20th Century
Credit Default Swaps (1990s)
How They Work
No regulation of CDS
Used to speculate and bet on which companies and countries would go bankrupt
More Contracts written than underlying debt
Post 2008
Led to AIGs demise
Financial regulation needed for CDS market
CDS clearing houses established in Europe and US
Standardization of CDS contracts
Offsetting trades to close position
Interest rate swaps
Hedge interest rate exposure
Speculate on interest rates
Benefit from a comparative advantage in interest rates
Currency Swap
Secure cheaper debt
Hedge currency risk
BTC / USD
First swap agreement in 1981 between IBM and World Bank
$461 trillion of outstanding interest rate swap contracts end Dec. 2013
$71 trillion in outstanding FX swap agreements end Dec. 2013
Crowd Funding
First used in 1994 by JP Morgan
Crowd Funding: A method of raising capital for a project or idea by receiving payments from a large number of investors.
Types of Crowd Funding
Reward based Funding
Equity Based Funding
Credit Based Funding / Peer 2 Peer
Future of Crowd Funding
Reduced role of Angle Investors and Venture Capitalist
2000
Crowd Funding and Banks
Crypto Currencies (2000s)
James Brownridge (4840906), Mitchell Murray (4758348), Conrad Pacesa (4964789), Nicolas Iamarino (5180336)
Electronic Trading (1970's)
Method of trading securities



Bring together buyers and sellers



Uses electronic trading platforms
Pros and Cons
Pros
Do it from anywhere
Trading costs decreased
Easier transparency

Cons
Glitches
Computer Speed
Time Lag
Finding broker that offers best rates
Electronic Brokers
Make you own investments

Personalized investment strategy

Make trades anytime

Research tools are provided

Lower costs
Uses
Contract giving buyer the right, to buy or sell an underlying asset
Seller has to follow up
Call
Put
Uses
Important Dates
Aristotle reference


1973 Black-Scholes Model


1973 Chicago Board Options Exchange
Money Transactions (1980's)
Online Banking

Person to Person Transfers

Online Shopping

Mobile Payment
Transactions
Mobile Payment
SMS Payment


WAP Payment


NFC Payment
Apple Pay
Easy payment
Touch ID to pay
Uses NFC antenna
Secure Payments
No storing of transactional details
VISA, Master Card, American Express
Participating companies
1960
Origins of Algorithmic Trading 1960's
Computing power increased at a rate paralleling Moore's Law
Peter N. Haurlan, a rocket scientist in the 1960's used a computer to analyze stock data
Computers entered into mainstream use
What is Algorithmic Trading?
Define Algorithmic trading
Plan consisting of a number of steps precisely setting out a sequence of actions to achieve a defined task
Basic example
Lets say you want to buy 100 shares of Apple stock (AAPL) and you are looking at a real-time data feed the sales price of the stock is anywhere between $110-112 but a couple minutes ago you observed a price of $107.50. So you decide to assign your Buy algorithm to BUY 100 shares AAPL at MARKET if trade price touches $107.50.
Algorithmic Trading now and in the Future
Our application
How the big players perform such trades
An automated future
How do CDO's work?
How do CDO's work?
Benefits
Increased liquidity in the economy
Freed up bank capital to make loans and invest
Faults
Diminished accountability
Amounts listed in Euros
Global Reward Based Funding Raised
Exchange Traded Funds (ETFs) (Early 2000s)
ETF's essentially track indices
Funds that replicate index performance
Gained popularity during the early 2000s
1492
Columbus discovered the new world
1812
U.S. Declares war on Britain
1914
World War I
1939
1945
1930
World War II
Global Standard Of Exchange
The Great Depression
Micro Payments
Decentralized Currency
First computer used
1970
Dot Com Bubble
1997
2008
Financial Crisis
Thank you for your time!!!
Financial tools created by banks to repackage individual loans into securities that can be sold to investors.
Collateralized Debt Obligations (CDOs)
Micro Payments
Decentralized Currency
Full transcript