FinanceLab Magazine - #03 - October 2010

I s s u e #0 3 - O c to ber 2010

The turnaround of

MAERSK LINE

The Rise of the

Chinese Consumer Internship in the UK The Asian Commodity Market Volunteering is a vision-feeder Corporate governance

in the banking industry

Editors word Summer is gone. Some of us were enjoying the sun in the holiday mode, while others working hard or doing internship in some fancy investment bank - just like Morten, who shares his experience with me and the readers of the Magazine (pg. 10). Many would probably envy Morten, yet before you decide to enter banking, just consider the industry’s “moral risks”, which Jacob warns you about (pg 8).

While it has been a decently warm summer this year, it did not quite heat up the global equity markets: if you had invested in any major stock index on June 1st, you’d have earned nearly 0% return

by August 31st. Uncertainty in the markets prevails, and investors, fearing the “double dip” in global macroeconomic cycle, continue to bring the gold prices up.

Meanwhile, we continue examining the global themes. Among such themes in investment world has recently been the Emerging Markets, like China - the country, which is set to surpass the US as world’s largest consumer in a few decades. The story of Chinese consumer in this edition is told by Jacob (pg. 2), who has this summer moved to China to work for the Danish Embassy.

How to exploit the voracious appetite of developing markets? Probably the most direct way is investing in commodities, the vital building block of growth. While you might have hard time in a competition for widely watched oil and metal prices, opportunities can be found in something like, for example, palm oil – and that is exactly what Thomas, our second “Asian correspondent”, tells us about (pg. 5).

The recent crisis has been rough for many companies. Yet some managed to get through successfully. If you take the example of Mærsk Line, which Daniel presents to us (pg. 6), you will see that NOTHING IS IMPOSSIBLE. Talking about possibilities, what have you done this year? Where are you headed? What are your mission and vision? If, by any chance, you feel like a „lost soul“, then there is some advice from Frederik to you (pg. 14). He explains that volunteering in such organization as FinanceLab can be a good chance to find and realize yourself. And if you are in doubt what project you could contribute to – maybe the new FinanceLab‘s Trading Floor, which Thorben tells us about (pg 12), would be a good kick-off point?

Enjoy your reading!

And let the Market forces be on your side ;-)

Sincerely, Aurelija

Content 2

The Rise of the Chinese Consumer

5

The Asian Commodity Market

6

The Turnaround of Maersk Line

8

Corporate Governance in the Banking Industry

10

Internship in the UK

12

The Trading Floor Project

14

Volunteering is a Vision-Feeder

15

FinanceLab Calendar

About Editors

FinanceLab

Aurelija Augulyte Kenneth Bernhard Kjeldsen

FinanceLab is a network and interest organization aiming to improve financial competences among students through networking, education and hands-on experience.

Layout Kenneth Bernhard Kjeldsen

FinanceLab is represented at several universities in Denmark such as Copenhagen Business School, University of Copenhagen, Aarhus School of Business and Arhus University.

Contributers

For more information please visit www.financelab.dk

Jacob Michaelsen Daniel Schmidt Jacob de Lichtenberg Thorben Andresen Frederik Søgaard Thomas Christensen

Address FinanceLab Copenhagen Business School PorcelĂŚnshaven 26 DK-2000 Frederiksberg

FinanceLab Magazine | 1

The Rise of the

Chinese Consumer

China has, ever since it began its reforms to open up in the late 1980’s, promoted its, and later became known for its, large manufacturing base. The name “The World´s Factory” has been commonly used to describe the Chinese economy. Having for years relied on exports and export-minded foreign exchange policy, cheap labour force, government programs, China is now slowly but surely making a move to a more consumption-oriented economy.

By Jacob de Lichtenberg

T

he China’s economic wonder has been described as the Chinese Development Model. The transition from a planned economy to a more market-oriented economy is, of course, a key characteristic in this model. This transition has been accompanied by an explicit external and internal capital accumulation strategy. The internal capital has involved credit given to state-owned enterprises and infrastructure projects by the state-controlled domestic banks, while the external capital - the foreign direct investment (FDI). As evidence of the successful strategy China became the largest recipient of FDI in 2002. FDI means an inflow of capital goods and technology, which consequently leads to job creation in the country. Professor Thomas I. Palley, who is the former Chief Economist of the US–China Economic and Security Review Commission, explains that usually such a leap forward in capital goods accumulation (industrialization process) would normally bring about a huge trade deficit, but in China’s case the inflow has been financed not

by China itself. With the entrance of better technology and better infrastructure, in addition to already existing low wages, foreign companies have continued to use China as its production hub, hence making China the world’s largest exporter, according to The Economist Intelligence Unit. The huge export resulted in trade surplus for China its foreign exchange reserves have increased massively.

Even though external demand plays the lead role in the Chinese Development Model, the internal demand has also helped the model succeed. The government has through state-controlled banks funded infrastructural projects, which has provided jobs and supported domestic demand within China. It has also maintained employment in lossmaking state owned enterprises (SOEs).

As mentioned briefly, low wages have also contributed to making China attractive for international companies. China has an advantage of huge and cheap labour force. It is estimated than a mere of 130 million migrant workers earn what equals to approximately 200 US dollars a month, or about one-twentieth of the average monthly wage in America.

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China´s foreign exchange policy The model or strategy explained above has been complemented by a “too low” Chinese exchange rate, in order to make China even more competitive internationally.

Throughout the years preceding 1978 the Chinese exchange rate had been pegged to the US dollar, and the Chinese authorities kept stringent capital control. It is estimated that the Chinese currency Renminbi (RMB) in this period had been overvalued in comparison to the rest of the world, because China wanted to stimulate import. After 1978 changes began to seep through the foreign exchange offices, and a dual-exchange-system was developed right after 1978. Although it was in a few years out of function again, it nevertheless helped China depreciated its currency from its perceived overvalued position. The depreciation did not happen in a couple of years. Instead, it was a gradual process which lasted into 2005, with only a minor appreciation in 1998. In the same period the US dollar depreciated against most of the large Western currencies, hence making the Renminbi even cheaper against the rest of the Western world.

In the wake of the Asian financial crisis China entered into deflation after the country had withstood - as one of the few Asian countries - devaluation of its currency against the US dollar. This meant lower prices in China, which helped offset export even further at that time. This rise in export led to a rise in the demand for the Renminbi. In that situation The Peoples’ Bank of China (PBC) bought US dollars with the newly printed Renminbi, thus satisfying the demand for Renminbi, while maintaining its peg to the US dollar.

Since the outburst of the financial crisis in 2008 China has resumed its fixed exchange rate system in order to protect its export sector from the vanishing demand. The world community with the US in front has politically called for an assessment of this measure, as they argue that China in an “unfair” way supporting its own export sector. The Chinese

government has lately softened its opinion on this matter, and the on the 19th of June, 2010, the PBC actually let the Renminbi rise 0.42 pct. in one day, making it the biggest rise one-day rise in 18 months.

Shenzhen is one of the fastest growing cities in China. The population has increased over 30 times since the early 80’s (above) until today (below) where nearly nine million people live in the city

China’s economy in transition The structure of the Chinese economy is somewhat quite different, compared to the Western world. In the US around 70 pct. of the GDP is private consumption, while that number is only 35 pct. in China, according to Professor in Economics at Copenhagen University Søren Kjeldsen-Kragh. The public spending accounts for 13 pct., while the rest (52 pct.) of the income is saved and used for investment purposes. China’s high savings rate, he explains, is a consequence of the small government spending. The Chinese citizens must provide most of the money for their children’s education, as well as their health-care expenses and pensions, hence they save.

So, the proportions of consumption are different, and the absolute numbers in terms of GDP reveals that the distance China has to overcome is still big. According to IMF, the US GDP was 14000 billion US dollars in 2009; hence the US consumption was 9800 billion dollars. China’s GDP was 4833 billion dollars, making the consumption part only 1692 billion dollars. So, the total Chinese consumption is still only onesixth of that of the US. On the per capita basis the two countries are not even worth comparing. These numbers suggest that even though some have talked about China taking over US in terms of driving the world economy, it is simply not true yet.

The same picture turns up if the comparison is made in terms of wealthy households. According to the research and consulting firm Mckinsey, less than 1 pct. of urban Chinese households currently are defined as wealthy compared with

around 10 pct. in the United States, Germany and Japan. But the number of wealthy households in China is likely to grow at an annual rate of around 16 pct. for the next five to seven years. At that time it is expected that China will have more than 4 million wealthy households, making it the world’s fourth largest country in terms of number of wealthy households after the US, Japan and the UK. On average, though, the country still has a lot of catching up to do.

Whenever China is discussed, we must not forget that the average picture often does not capture the many differences within China. The characteristics of the rural and city areas in terms of consumption are very different. The average per capita income in the rural areas was 285 US dollars a month, while it was 826 dollar a month in the cities back in 2004. As the two assistant marketing and advertising professors Guohua Wu and Tao Sun point out, the difference

FinanceLab Magazine | 3

between rural population and city population is higher than what you would normally see. In most other countries, the urban-rural income ratios are below 1.5, while it in China was 2.9 in 2004. Because of the big differences in income consumer habits differs a lot from “rich” cities to the “poor” rural areas. Mckinsey in its 2009 Annual Chinese Consumer Study goes even further investigating the differences within China – they split the Chinese market into 22 clusters, which in total compromises 92 pct. of GDP. In its research it finds that the way the 11 out of 14 consumer characteristics can be explained by the cluster.

That said, the latest GDP figures from 2009 show that the domestic demand is on the rise, with investments taking the lead. As it is noticeable from the GDP numbers, investment was the key driving factor in 2009, and total fixed asset investment in 2009 actually rose 30.1 percent compared to 2008.

The transition going forward: challenges and opportunities More and more economists now begin to see signs of fading cheap labour force, and that could be one of the reasons why China in these days is experiencing a rise in labour strikes.

Others have different opinions. According to The Economist, calculations by Knight, Deng Quheng of the Chinese Academy of Social Sciences and Li Shi of Beijing Normal University imply that there are still 70m people in China’s villages that might be expected to leave in search of work, given their age, family obligations and so forth.

China is not facing a shortage of labour in the short term, but in the long term things could look quite different. Even though labour shortage is not a problem on average right now some are arguing that the labour market is more fragmented and that the coastal areas will begin to feel the shortages before the interior China, which will lead to higher wages. This may probably to some extent be offset by more migration to the area, but eventually wages will tend to rise.

Higher wages are bad for China’s overall competitiveness, but it helps stimulate the domestic demand.

A lot of fuzz amongst financial pundits has been about whether there is a bubble in the Chinese housing market.

One of the most prominent advocates of this argument has been Jim Chanos, while another famous investor Jim Rogers has argued the opposite.

It is widely believed that appreciation of the Renminbi will continue, although at a slow pace. Stronger Renminbi means higher purchasing power of the Chinese consumers, which eventually will lead to purchases from the rest of the world, hence a higher import quote. The stronger Renminbi will like higher wages - lower China´s attractiveness as a country for production, because the cost of everything goes up.

Consumption is expected to play increasingly more important role in China’s economy. MasterCard’s Asia-Pacific economic adviser Yuwa Hedrick-Wong thinks that the rapid urbanization process which is underway is a supporting factor

4 | FinanceLab Magazine

for future consumption-led growth, while the senior economist at the Industrial Bank, Lu Zhengwei notice that China will see an aging society down the road, which is expected to boost consumption as the elderly save less and spend more.

The impact of the Chinese consumer society The transition towards a consumer society will have far reaching consequences for China and for the world surrounding it.

The Chinese population with more purchasing power offers Chinese and foreign companies a lot of business opportunities. As noted above, the level of consumption and general spending power per capita is still far lower than in the Western countries, but with China’s size the future importance of this market will only grow higher. Even though a company tries to target China as a whole, the business managers must be aware of the different type of spending habits which exist within China. McKinsey suggests that each company should divide the country in to two, three or more different clusters (not necessarily by geography) and then target the clusters differently in regard to entrance strategy, marketing etc.

The population of 1.4 billion people who is increasing its spending can also have considerable impact on the environment. In these days this is an important question in the Western world and China is already feeling the pressure from the world community to be more environmentally conscious. As the Chinese population becomes richer internal pressure for cleaner air, healthier food etc. will probably arise too.

As China becomes economically more independent from the external demand, it will probably also move towards more independence in geopolitical issues, as the possible sanctions it could face, if the world community got upset with China, would seem less frightening. In that regard a more domestic oriented economy could have a significant consequence on the international political scene.

Even though the Chinese market has not reached that of the US and will not do it in the foreseeable future in terms of per capita spending, the size of the country still makes it very attractive. The estimates for a continuing rapid rise of the Chinese economy just make the case even more interesting.

Literature: External Contradictions of the Chinese Development Model, export-led growth and the dangers of global economic contraction, Journal of Contemporary China (2006), 15(46), February, 69–88 – Thomas I. Palley China´s Monetary Challenges – Past Experiences & Future Prospect, Cambrigde University Press, Richard C. K. Burdekin.

(ISBN-13: 9780521880169) Consumption patterns of Chinese urban and rural consumers, Journal of Consumer Marketing, Volume 21, Number 4 2004, Tao Sun& Guohua Wu

The Asian Commodity Market

Is there any money to be earned in Palm Oil?

By Thomas Christensen

C

ommodity traders from around the world have their eyes fixed on Asia these days. Surging Chinese import of raw materials has acted as stimulus after Western consumption shrivelled during the financial crisis. Therefore, Asia is now a key region to watch when investing in oil, and even more important when dealing with metals such as copper, aluminium and nickel. Such materials are traded on the London Metal Exchange, but Shanghai is constantly grabbing a larger share of the trade. Besides these more well-known commodities a range of more peripheral materials are traded in Asia, which may attract the curiosity of more adventurous investors. One of these is palm oil, which is traded in Kuala Lumpur and is thus denominated in the Malaysian currency Ringgit.

Palm oil is a versatile commodity used in a myriad of products, and demand has been steadily growing as the Asian economies mature.

A potential investor in palm oil needs to scrutinize a host of fundamentals in order to better predict the future price in the market. First, the inventory publications from particular Malaysia and Indonesia should be studied intensively. Similarly, investors should also pore over the respective export publications from the Malaysian or Indonesian authorities, since that is a good proxy for demand in the market. Production levels from Malaysia and Indonesia are also important for the price mechanism, since those two countries more or less make up the entire market supply of palm oil. Another key variable is the price of substituting products. Particularly, the price of soybean oil is fiendishly important given that soybean oil acts as a nearly perfect substitute. The price on crude oil should likewise be included in the calculations, since palm oil can be used to produce biofuel, and the benefits of producing biofuel vary concomitantly with the price of crude oil. Therefore, demand coming from biofuel producers fluctuates with the oil price. An additional key parameter is economic growth, predominantly in the Asian region, since the use of palm oil in food production is projected to increase with consumer income. The final fundamental, which is pivotal to foreign investors, is the current exchange rate of the ringgit: a strong ringgit implies that prices are higher for foreign buyers, while a weak ringgit will cause the price of palm oil to surge.

So how is palm-oil currently trading, and are there some

money to be made? After a surge from approximately 2260 ringgit to 2730 ringgit between the 7/30-2010 to 10/8-2010 the market plunged down to a price of 2500 in the beginning of August on concerns that demand in China and India would decline, and because the price of soybean oil was faltering. Since then the price has continuously risen to the current price of 2737 ringgit. This happened as a consequence of production disruptions in Malaysia during a Muslim festival and strong exportnumbers from both Malaysia and Indonesia. The present outlook for the price is however rather bearish, as spectators expect production to increase significantly in October and November, which will put the price under strain. A price below 2500 however should be considered a buy-indicator. Therefore, investors may hold their breath until the market turns before filling up their pockets.

However, palm oil is not primarily interesting due to the short run implication, but mainly because of the long changes that may lure in the horizon. Grain has received great media cover the last couple of month since yet another food crisis has erupted following the devastating fires in Russia, and perhaps a similar occurrence could happen to palm-oil in the future. The fundamentals in the palm oil market may change in the long run, as spectators think plantations owners will face a strong pressure from environmental groups to stop the expansion and destruction of the national habitat. This pressure is increasingly mounting in Malaysia and Indonesia, and if those two countries cannot expand production significantly while demand is projected to increase due to high growth in the Asian region then a bonanza market may await investors in the coming years. At least the development is worth watching for investors, who search for under-traded markets, where diligent analysis is more likely to be rewarded due to the limited number of investors.

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The turnaround of

Mærsk Line makes up the majority of the business of A. P. Møller – Mærsk, and, therefore, the business unit has huge influence on the stock price of the whole company. Back in the beginning of 2008 a turnaround was made within Mærsk Line, and despite the financial crisis the Danish shipping giant is now starting to show the results.

By Daniel Schmidt

M

ærsk Line came out of year 2007 with an unsatisfactory result and decreasing market shares. The integration of P&O Nedlloyd gave problems, IT gave problems, and nothing was running as smoothly as it should do. Further-

6 | FinanceLab Magazine

more, the company was just at the beginning of the worldwide financial crisis, which, without doubt, would bring trouble to a company as sensitive to the state of the market as Mærsk Line. Therefore, it was decided to make a strategic turnaround: focus on cost, focus on customers, and focus on core business.

About 20% of the staff was dismissed, and the organizational structure was

changed as well. The goal was set to be the shipping company with the best consumer satisfaction, and the idea of using own suppliers across the business was confronted. But, despite the turnaround, the global economic meltdown had such a huge impact on prices and quantity that no shipping company could earn money: in 2009 Mærsk Line came out with a negative result of DKK 11.2 billion.

This spring - two years after the turnaround - the CEO of A. P. Møller – Mærsk Niels Smedegaard Andersen declared the turnaround a success, since Mærsk

Line now started the show positive results in a market with overcapacity and low freight rates. The success was mainly due to lower costs, but because of the higher customer satisfaction, Mærsk Line could charge customers more than other shipping companies could.

Altogether, Mærsk Line was now designed to be profitable.

Just a few weeks ago A. P. Møller – Mærsk rose their forecast for the second time within a short period.

This was mainly due to the higher profitability of Mærsk Line, which now benefits from better economic climate and low capacity costs. Most analysts following the company are sure that Mærsk Line will turn out to be the winner of the industry after the crisis, and the average price target for the share (A. P. Møller – Mærsk B) is DKK 57.350. The share is now worth DKK 46.600 (29/9 2010).

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By Jacob Michaelsen

Corporate governance

In the banking industry

Tighter regulation has by many been hailed as the way to control banks and prevent financial turmoil such as the recent crisis. However, from a corporate governance perspective this might not be altogether reasonable. The reason is simply that regulation in many cases inhibit otherwise effective control mechanisms.

T

he field of corporate governance is, arguably, one of the most proliferated within the theory of economics and, certainly, within the theory of the firm. Its roots go all the way back to Adam Smith (1776), who wrote that “negligence and profusion (‌) must always prevail, more or less, in the management of the affairs of such a companyâ€?. Today, in the aftermath of the worst financial and economic crisis the world has seen to date; the issue of corporate governance seems more relevant than ever. It is interesting that although corporate scandals, such as Enron, WorldCom and Parmalat, have occurred, none have been more devastating to the worldwide economy as a whole than of those in the financial industry.

Why are banks different?

What is different about banks is their somewhat peculiar construction where the creditors, at the same time, are also the customers. Also, because of activities on the inter-bank market, competitors are also viable business partners. Lastly, and maybe most important of all, banks are special because they help stimulate growth and thus play an important and

central role for economic stability. Therefore, the stakeholders, in comparison to other industries, will represent the economic system in its entirety (such as depositors, governments, supervisors, small businesses, etc.).

As a result, we see the banking industry being the most heavily regulated industry in the world with laws and statutes that require banks to operate under certain conditions and within specific boundaries. Interestingly, this leads to the suggestion that the regulatory oversight of the banking industry can be seen as a substitute to corporate governance in banking firms. Although it is an intriguing idea the current economic crisis proves this cannot be seen as a substitute.

How does the heavy regulation of banks affect the corporate governance?

The regulation of banks affects the corporate governance in many ways. One of them is through the depositor insurance scheme that ensures depositors of banks that their money, up to a certain amount, is insured. Although an effective mean to help prevent bank runs it is from a corporate governance perspective not altogether fantastic. Because of the promised insurance more people are willing to lend the bank money which, in turn, leads to the bank taking on less uninsured loans with third parties. As mentioned above, this is an unfavorable effect, as it decreases the financial stability of the banks.

Another aspect is the dispersion of ownership in banks. This is important, as ownership structure is a critical component in corporate governance. The more dispersed ownership, the higher the costs of

8 | FinanceLab Magazine

monitoring management. For banks, usually, this is So, what to do then? a problem, as investors are often restricted by law to From the perspective of corporate governance, we a maximum share of ownership. have seen that tighter regulation might not work favorably in the banking industry, as good mechaThe third point is the diminished effect of the mar- nisms are made useless simply by regulation. Howket for corporate control, as a corporate governance ever, this is not the same as saying that we should mechanism. In a normally regulated industry man- start to deregulate the banking industry. What to do agement is induced to perform well, as poor per- then is difficult to say. Unfortunately, there does not formance will, in many cases, result in the company seem to be a clear paved way to govern banks in an being acquired by a third party – resulting in re- efficient and profitable way. What is recommended placement of the management. However, because by this writer, however, is that efforts are made to of the stricter regulation in the banking industry, include the aspect of corporate governance mechathere is a less active market for takeovers. This re- nisms to support inducing of proper management. duces the effectiveness of the mechanism to induce A good place to start could be the next round of fimanagement to perform well. nancial stability packages.

Bank run The term bank run is used to describe the situation when a large number of bank customers meet up at the bank to withdraw their deposits. The main reason for doing this is a highly increased risk of the bank becoming insolvent. Nowadays bank runs are quite rare but the history contains several examples - most of them going on in the 17th and 18th century though.

The biggest occurrence of bank runs in the 19th century was under The Great Depression in the 1930’s. Regulations in the banking sector are in the recent history widely used as means to avoid bank runs by minimizing the risk of insolvency.

One of the most recent examples of bank runs were seen on the British bank northern rock in 2007

A bank run on the American Union Bank during The Great Depression in the 1930’s

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By Aurelija Augulyte

Internship in the UK Interview with Morten Tullin

Morten Tullin is currrently in his third year of studies at Copenhagen Business School for a bachelor’s degree in International Business. He is also an active member at FinanceLab’s Investment Panel, representing the “Commodity” team. This summer Morten had a great chance to broaden his professional background by doing internship in the UK, which he kindly agreed to tell us about...

Morten, I know you spent most of your summer center. The assessment center lasted two days in Glasgow on a summer internship - which bank where the first day contained individual testing and the second day had a group-exercise and and department? three interviews of 45 minutes each. ApproxiI spent 13 weeks of my summer in Glasgow on a mately two months after I had attended the summer internship at Morgan Stanley. I was in the assessment center they called me and offered department called Operations which usually deals me a contract for the summer. Recruitment inwith trades after they have been executed. There formed us that they had received over 600 apwere many teams within Operations, and I was in plications for the 15 internships at their departthe equity bookings-team. ment.

Can you tell me a bit about how you managed to Can you describe your typical day as an intern? get in? Was it difficult?

In late November, I decided to apply for a summer internship within a financial institution.

Most of the departments had already closed their application process, so I applied to Operations which was still open. I was a bit surprised by the thoroughness of the recruitment process. I first had to upload my CV, a cover letter and grade transcript online. On an evening in January I received an unwarned call by a recruiter from Morgan Stanley, who asked if I had time for a few questions. The telephone interview was competency based and lasted approximately 30-45 minutes. The following day, they called me again to invite me to the assessment 10 | FinanceLab Magazine

I usually arrived at the office between 8 and 8:30 depending on the volume traded the preceding day. I went through the emails that I received overnight before the trades executed in Tokyo were ready to be booked at 9. At 10:30, the market in Hong-Kong was closed and all the trades must be booked and stored correctly before the market opens again. The first few hours of the day could be quite busy because I was under pressure and had to meet deadlines. Afterwards until 16:30, my day was usually calmer since trades from the London Stock Exchange often do not close until later in the afternoon. In this period, I solved trades that have been reject-

ed by the client, respond to client queries and project work. Many inconsistencies can arise between two traders after they have agreed on the terms. Usually, one of the traders type incorrect commission, price, quantity or settlement date into the system and then it was my job to figure out who made the mistake and amend the trade.

What is your overall impression of the time spent as an intern?

I enjoyed my time as an intern and it will benefit me in the future. One of the most important aspects of being an intern in Morgan Stanley was that I never felt like an intern. I participated in the team as if I was a permanent member. My manager trusted me and gave me a lot of reIt is often said that juniors work like hell in bank- sponsibility taking the length of my stay into ing, having no free time, no weekends. Was it the consideration. case with you?

Do you expect your relationship with the bank, deOperations is a department that is dependent partment to continue? upon the markets, which means that when the markets are closed, no new tasks will be given I really enjoyed the culture and atmosphere at to the teams in Operations. When the market in Morgan Stanley and I hope to return next sumLondon closes at 16:30, the traders have 30min- mer. I will not apply for the same department utes to “clean-up� their trades for Operations to again, but may try to apply for different at the take over. I usually got off at 18:30; however, bank. I might return to the same department some days could be longer or shorter depend- sometime in the future, but I am also curious to ing on the volume traded on the London Stock see how the other departments operate.

Exchange. So my average work day was approximately 10 hours. Since the London Stock Exchange is closed on weekends, I did not have to come into the office.

FinanceLab Magazine | 11

The New Initiative: Being equippe

By Thorben Andresen

Lund has one, Gothenburg has one, Jönköping has one – several universities and business schools throughout the world has one – Copenhagen unfortunately has none. What is it, which puts CBS behind our neighboring business schools? Need a hint? It is not just valuable for understanding the concepts behind risk management, equities and options; it also makes you a lot more attractive for employer in these fields! Yes, you got it right - we are talking about a trading floor.

As you might have noticed, the FinanceLab team worked hard to offer a series of trading diploma courses in a team effort with Global Capital Market Solutions. We also rolled out collaboration with Reuters, offering you the possibility to get a 3000 Xtra certification. The outstanding success inspired us to take the next step, which is setting up a real trading floor at CBS. So what would it be like to have a trading floor at CBS? Let me illustrate the value of a trading floor by the example of A.B. Freeman School of Business at Tulane University in New Orleans, where I went on exchange. The CBS partner

Wright State University Raj Soin College of Business

school opened the doors to its own state-of-the-art trading floor in late 2007, equipped with each dual monitors and the latest trading and financial markets software.

Additionally, three flat screen TV’s, a video wall and a Wall Street-styled LED news ticker make sure that the students do not miss any market-moving events.

The trading software allows the students to enter mock transactions on the same platforms used by many financial companies. The trading software is integrated with Reuters market data system, which provides the user with real-time news and data, a historical database, as well as analysis tools in order to make well-founded decisions. Tulane University is also the first business school, which connected the trading and financial markets software with Reuters ReplayService. This feature replays actual historic market news and data to simulate real-life situations. This enables the students to trade historical market events like e.g. the post-Katrina hurricane turmoil.

“This type of creative technology, along with the ability to control the speed of the data, will help us teach students about many types of trading situations,” says Joe Leblanc, who teaches the class.

Besides classes and external courses, the room is used for exciting trading competitions with other business schools.

Last year 21 teams from 13 top universities were competing in a remote round, of which the top seven teams were invited for the two days final at Tulane’s Trading Floor. The winner team, which achieved highest the risk-adjusted profit, was awarded with prestigious internships.

Both the academic and the business community are excited about the benefits of the trading floor.

“So many people are coming out of school without the basic knowledge of the fundamentals and then how to move from that into a trading strategy and to be able to execute it,” says Joe LeBlanc. “This group has a leg up with

Lehigh University College of Business and Economics

12 | FinanceLab Magazine

Texas A&M University Mays Business School

ed to “hit the ground running” University of Connecticut School of Business Pennsylvania State University Smeal College of Business

that combination.”

“Giving students access to the same powerful systems used by actual traders gives Tulane students a distinct advantage in the marketplace,” says Nick Dicosola, vice president of the Professional Services Group at Reuters.

“Beyond this, Tulane students will leave school with a valuable working knowledge of how the trading systems operate, allowing them to hit the ground running on their first day as a trader.”

Major TV stations like CNBC covered the launch of the floor and subsequently several companies, like BP and Bear Stearns, started to hire specifically out of these classes.

Although a trading floor with cutting edge-technologies sounds very complex and expensive, it might not be such a long shot for CBS students. The FinanceLab team is pursuing several ideas and already has partner agreements in place for realizing the Trading Floor, including Reuters and NASDAQ OMX.

Bentley University

Baruch College Zicklin School of Business

If you also believe in the merits of trading floor and are eager to help us, you are more than welcome to contact tradingfloor@financelab.dk.

University of Texas at Austin McCombs School of Business

University of Toronto Rotman School of Management

FinanceLab Magazine | 13

Maybe you’ve recognized the feeling of being in urge of creativity and productivity. You want to add something new to the world. You just haven’t found out “what” yet.

Volunteering is a

VISION-FEEDER

Y

ou need visions to release your creative energy. But you need education to work for great visions. More interesting – to work for your own visions. And that often begins with volunteering. The volunteering trend is a symptom of the dilemma that is illustrated in the following discussion.

Full of energy you were brought to life in a body that constantly needs to observe itself rising in the world rich of opportunities, spare time and money. Your family and facebook friends also want to see you rise.

But you haven’t found the right inspiration yet. You still need true passion to lift yourself up and rely on.

What a dilemma. You’re longing for a change without knowing exactly what to change and how to change it.

You’re not the only one who’s running blind.

Running blind doesn’t have to be a question of your career choice - your career is just a result of the visions, which you favor most. Rather, it’s more a question of creating your own visions. I often consider visions as a spiritual matter. They are a bridge to a new dimension of ideas, where you find spiritual peace. Without vision you can’t channel out all your creative energy.

You’re like a radio without a tuner. You’re just making noise and complaining about what all the other radios on the market are playing - wrong or right. Some people make noise until they suddenly find their own channel, and some people will never tune in.

But deep inside we all want to compete, instead of complain. Every human

14 | FinanceLab Magazine

By Frederik Søgaard

contains a wonderful force of production. But, sadly, not everyone knows what to produce.

There are several ways of creating and exploring your visionary spirit. But, I think, a natural start is volunteering. Through volunteering no one pays me to follow his or her visions. I can speed up and down, as I like.

Volunteering is a world where only the pure and innocent visions drive things around in an honest pace. I’m the owner of every project, which I volunteer in, and I put my own visions into it. I become an inventor of a little world in the world, where I turn pure visions into valuable production. It’s not derived from someone’s money. My creation grew out of pure visions and a source of endless inspiration.

Every day I meet highly visionary people who are also volunteering only to serve their own ideas. By volunteering I expand old visions and discover new visions through other volunteers. That’s why volunteering is necessary for those who urge for creativity. It’s about feeding a visionary spirit. You observe the bright world of true visionaries, you get inspired, and you watch your own visions grow. They influence your everyday life, and you become more self-confident. You feel safe and certain about your future and the choices you make.

When volunteering you slowly begin to create your own true visionary spirit - and that’s where it all starts!

FinanceLab Calendar 03/10 - 05/10:

Basic Trading Diploma Course Through partnership with GCMS (Global Capital Market Solutions), FinanceLab is offering the only trading diploma course in Denmark. 
You will attain diploma-certification in Trading Tactics, Forex Trading, Equity Derivatives, Technical Analysis and much more.

Teachers with 9 years of HR- and trader-experience will be coaching you through the trading platform (Saxotrader) and different trading decisions.

Sign up at www.financelab.dk

10/10 - 12/10:

Basic Trading Diploma Course Through partnership with GCMS (Global Capital Market Solutions), FinanceLab is offering the only trading diploma course in Denmark. 
You will attain diploma-certification in Trading Tactics, Forex Trading, Equity Derivatives, Technical Analysis and much more.

Teachers with 9 years of HR- and trader-experience will be coaching you through the trading platform (Saxotrader) and different trading decisions.

Sign up at www.financelab.dk

06/11 - 15/11:

FinanceLab Study trip 2010 - New York FinanceLab is heading to New York to meet some of the leading global financial players. The excursion is arranged in order to give students a chance to connect with and be inspired by some of the greatest personalities and institutions within finance. We will visit financial institutions, major banks and people working with regulation of global finance.

This years trip is fully booked already.

Please visit the event calendar at www.financelab.dk to get the full overview of all planned FinanceLab events.

FinanceLab Magazine | 15