Foundations Of Fintech
Blockchain fintech investing and business school basics,
Foundations of Fintech, Spring 2019: FINAL EXAM Professors DeRose, Bakos, Halaburda Instructions: please read carefully! This is an open book exam but the work should be yours and yours alone. Do not share the exam with anyone outside the class. There are a total of six topics with sub-questions for each. Please make sure to answer each one and the exact question asked. Where indicated you may take either side of the question. Provide supporting evidence. Feel free to use the frameworks, examples, and sources from class throughout the semester, and from your own reading if you wish. Please cite these sources via in-text references (Smith: 2014: 33), and either footnotes or bibliography with the full reference (Smith, Eunice. (2014). Fintech Carrots. New York. Jones Publishing). Please submit it via NYU Classes by midnight (11:55) EST on May 16th. You have one week to complete the exam. (No late submissions, no emails). Please do not exceed the indicated word count; concision is highly appreciated; longer answers will not be read. Please submit only PDFs. Good luck! Your full name and net ID: (xx000) __________________________
Fintech startups: Rally Road or Tend? (40 points) Rally Road and Tend “democratize” ownership of classic cars. (Maximum 1000 words for all four questions) Rally Road raised capital through a traditional equity offering. Tend raised capital with an ICO (initial coin offering) also known as a token offering. Rally Road securitizes classic cars. Tend tokenizes partial ownership stakes in classic cars (and other tangible assets). Rally Road uses a partner broker dealer to maintain user account records, linking them to the user’s traditional bank account for payment. Tend uses a partner bank to hold traditiona l currencies that can be exchanged into Tend (“TND”) tokens, and keeps its token and asset records on the blockchain. https://rallyrd.com https://www.tend.swiss
Rally Road Tend Company capital raise VC equity Token (TND) Asset (car) Securitization-Reg. A+
offer, RR marketplace tradable, records maintained by RR
Tokenized via TND, Tend marketplace tradable, records on the blockchain
User investor Brokerage account to hold and trade shares
Custody bank account to hold FX & TND
Physical use of asset? No-RR keeps control Yes-partner administers
- Which company has the more effective approach to: a) raising capital for the company? b) democratizing asset ownership and facilitating trading? c) maintaining records?
- Why did Rally Road and Tend make opposite choices about allowing users
physical access to the asset?
- Which company will be more successful at generating network effects, and why?
- Why does Tend price its share offerings in Swiss Francs (CHF) instead of in TND?
Valuation Tech or Fin? Equity Zen (10 points) Equity Zen is a platform that matches buyers and sellers of private company shares. (Maximum 500 words for all three questions) https://equityzen.com
- Is Equity Zen an example of “regulatory arbitrage”? Please answer yes or no and support your argument.
- How would you value Equity Zen? Please support your argument with evidence.
- Based on what you learned in class about unicorn valuation, what advice would
you give to users who are buying private company common shares on the Equity Zen platform?
Fintech Cyber Crime (10 points) Supporters argue that blockchain acts as an effective trust substitute, replacing traditional financial intermediaries with distributed, immutable records maintained with encrypted smart contracts. Does blockchain mitigate the threat of cyber-crime in financial services businesses with “latency” risk? (Latency risk is the difference between clock time and financial transactions time). Please answer yes or no and please support your answer with evidence from financial services use cases and by describing in detail the specific blockchain features that either shrink or magnify latency risk. (Maximum 300 words) Global Fintech and the Robo-apocalypse (10 points) Fintech promises to reduce financial intermediation costs, improving the transparency and accessibility of the financial system. But fintech automation, driven by machine learning algorithms and eventually by artificial intelligence, also introduces new risks, like financial surveillance. Different models are emerging around the world for mitigating this risk. Is fintech innovation an unalloyed benefit for society? Please support your argument with examples. (Maximum 500 words) Law of One Price (10 points) Bitcoin is the definition of an asset that should fulfill the “law of one price,” since it is “by design the same, fully fungible, with identical payoffs and no currency risk” (Kroeger & Sarkar: 2017). Why does bitcoin trade at different prices on different U.S. dollar exchanges? (Maximum 300 words).
Behavioral Fintech What behavioral “biases” do these fintechs exploit? (Maximum 100 words).
- An app offers NYU students “graduation bonus” incentives with the following choices: 96% chance of a $10,000 bonus, and 100% chance of a $9500 bonus. The NYU student does not want to take chances and chooses the 100% chance of a $9500 bonus.
- An app sells NYU students “shoe theft” insurance. Expensive shoes have a 5% chance of getting stolen. The average shoe value is $100. The premium charged is $10. The NYU student buys the insurance because she does not want to lose her shoes.
Question Word Count Maximums and Point Values: 3000 words, 100 points Rally Road and Tend: 1000 words, 40 points, 4 sub parts Valuation: 500 words, 20 points, 3 sub parts Cyber Crime: 300 words, 10 points Global Fintech and Robo-apocalypse: 500 words, 10 points Law of One Price: 300 words, 10 points Behavioral Fintech: 100 words, 10 points
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