Political Risk: An Example in France in 2024

December 24, 2024December 7, 2024 by Marine SELLI

Political Risk: An Example in France in 2024

In this article, Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024) explores the intricate relationship between political risk and financial markets, focusing on France’s landscape in 2024.

The context

Financial market stability is critically dependent on political risk, which determines how investors behave, borrowing costs and how strong a nation’s currency is. Consequently, market fears of political instability under Michel Barnier’s government have been heightened in France. Indeed, the instability has manifested itself in rising bond spreads, pressure on the euro and rising costs of debt issuance. Therefore, France’s financial landscape is being impacted by political uncertainty.

Spread Since the Dissolution of the National Assembly.
Spread Between French and German Bonds Political risk in France
Source: Bloomberg, Les Echos

The Cost of French Debt Rises

One of the most widely followed indicators of France’s economic health is its government bonds (obligations assimilables du Trésor or OATs): the yield reflects market confidence in France’s creditworthiness and economic conditions, with rising yields often signaling increased risk perceived by investors. Additionally, the spread between OAT yields and German Bunds serves as a benchmark for comparing investor sentiment toward France versus Europe’s strongest economy. In the past few months, the French bond market has spiked to political uncertainty. As a result, the spread between French and German 10-year bond (which represents a key risk gauge) spiked to 89 basis points in late November 2024. It is the highest since eurozone crisis days in 2012, and up from the 55 basis points in May 2024 before parliamentary dissolution.

Spread Between French and Greek Bonds.

Source: Bloomberg, Les Echos.

The spread reflects the additional yield investors demand to hold French debt over German bonds, which are the eurozone’s safest. Therefore, it represents a quantifiable expression of the risk that markets see associated with France’s political and fiscal situation. This comes as France’s 10-year bond yield has risen sharply from 2.9% at the start of 2024 to 3.2% in November 2024. However, German yields have remained steady at 2.1%, reflecting a difference in confidence among investors in the two economies.

Therefore, the implications for France’s borrowing costs are profound. In 2025, the government will issue €300 billion in bonds, a record amount, as debt refinancing needs and budgetary deficits are pushing up borrowing. A 30 basis point rise in yields could add £900m a year to the interest bill, further stretching a budget that is already under severe strain. Hence, the urgent need to restore market confidence is underlined by the cumulative cost of higher borrowing rates.

The Cost of French Debt Rises

France’s political challenges have also put pressure on the euro, often considered a barometer of European unity. The euro is currently trading at $1.05 and risks further depreciation to parity with the US dollar if the Barnier government collapses. Historically, currency markets have been sensitive to French political developments, and we can point to recent examples.

For instance, speculation of a severe euro devaluation swirled around a ‘Frexit’ in 2017 after fears of such an outcome during the presidential campaign of Marine Le Pen. Analysts had forecast up to 5% fall in the euro, but Emmanuel Macron’s eventual victory eased those fears, pushing the euro 10% higher in four months. However, in 2024, the situation is less clear. The euro’s path remains fragile as investor sentiment is weighed down by political uncertainty and fiscal deficits near 6% of GDP. Further decline would aggravate inflationary pressures by increasing the cost of imports, especially energy, and would provide only modest export benefits in a weak global economy.

Meanwhile, the widening of the French-German spread in recent weeks has been a clear signal that skepticism about France’s political and fiscal outlook has been growing.

France, a semi core of the eurozone, now has borrowing costs approaching those of southern European countries such as Spain and Portugal, which have been viewed as riskier. For example, Spanish 10-year bond yields have fallen below those of France due to the improved fiscal discipline in and economic performance by Spain. In the meantime, France’s credit default swaps are trading at 0.4%, implying a default probability of 2.6%. This is still below Greece’s 5%, but it reflects a loss of confidence in French fiscal management.

Additionally, liquidity concerns are also at play. France’s ability to get enough private investors to put money into its debt is becoming more reliant on these private investors as the European Central Bank reduces its purchases of bonds. The shift in market dynamics only underscores the need for political stability.

France Fiscal Outlook

France’s fiscal outlook is a daunting challenge for financial markets. This comes as the government embarks on its record €300 billion debt issuance program for 2025, at a time when interest costs are rising and the budget remains in deficit. As a result, the sheer volume of outstanding debt, coupled with higher yields, will push debt servicing expenses to €55 billion in 2025, from €50 billion in 2024.

Moreover, France’s debt-to-GDP ratio is already 111% in 2024, one of the highest in the eurozone. That ratio has been a source of concern about the sustainability of France’s fiscal policies, given that it comes amid a slow economic growth. That’s why analysts warn that without meaningful reforms to deal with structural deficits, the debt trajectory could become unsustainable, which will then trigger further downgrades from credit rating agencies and higher borrowing costs.

Outstanding French Debt Overview.

Source: Agence du Trésor.

In conclusion, France is at a crossroads, and its financial markets are reflecting deep seated worries about political instability and fiscal sustainability. Widening bond spreads, growing debt servicing costs and pressure on the euro underscore the need for action. Furthermore, this case serves as a textbook example of how political risk can deeply impact financial markets. The interplay between France’s domestic political turmoil, bond spreads, currency volatility, and investor sentiment demonstrates how closely markets monitor political developments.

Why should I be interested in this post?

This post provides an analysis of how political risk impacts financial markets, focusing on the French bond market, currency fluctuations, and fiscal sustainability. It gives you an outlook on the real-world consequences of political instability, offering a detailed understanding of how investor sentiment shifts in response to political uncertainties.

Useful resources

European Central Bank (ECB)

Agence France Trésor (AFT)

Bloomberg

Les Echos (Financial Market Section)

Standard & Poor’s (S&P) Global Ratings

About the author

The article was written in December 2024 by Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024).

My Internship Experience at Safety Carb

December 24, 2024December 7, 2024 by Marine SELLI

My Internship Experience at Safety Carb

In this article, Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024) shares her professional experience as a Strategic Financial Planner at Safety Carb Additifs.

About Safety Carb

My father founded Safety Carb Additifs as an entrepreneurial venture in 2015 to produce French industrial additives. It is a company focused on environmentally friendly additives while reducing their negative ecological impact. Over the years, Safety Carb has developed itself and reaffirmed its positioning earning eco-certifications that also allow its customers to benefit from eco-primes.

Logo of the company.
Logo of Safety Carb
Source: Safety Carb.

My internship at Safety Carb

Joining Safety Carb Additifs as a Strategic Financial Planner gave me the opportunity to contribute to an entrepreneurial venture which is a stimulating and ever evolving environment. My role encompassed many day-to-day recurring tasks such as inventory management, issuing invoices, it was mainly centered around developing a comprehensive business plan, which served as a foundation for the company’s strategic initiatives and future growth. Yet being in a small corporate setting, in rare moments I also had to bring support in other areas such as operational tasks.

In the end, this internship allowed me to delve into the company’s financial operations and understand the unique challenges faced by entrepreneurial ventures.

My missions

One of the main parts of my internship was the creation of a detailed business plan with the CFO ( Chief Financial Officer ). I had to do in-depth market research of this process in which I had to assess growth opportunities and identify the company’s competitive advantage. We looked to determine the possible market expansions and the need to incorporate the sustainability metrics into the plan. Safety Carb emphasized the use of its eco-friendly products to break new market segments in this business plan.

It also featured financial projections of the company’s growth potential and indicated the company’s ability to achieve profitability while conforming to his sustainability objectives, and used scenarios useful for external financing like investors.

I was also responsible for helping to synthesize accounting data and to create tools to monitor inventory so that the company’s operations could be kept efficiently and on track with its financial achievement.

Required skills and knowledge

Reflecting on it, my internship at Safety Carb Additifs required a combination of technical and analytical skills. Developing the business plan required me to acquire a comprehensive understanding of financial modeling and market analysis. Moreover, I needed a strategic mindset to balance the company’s entrepreneurial objectives with its operational constraints. For instance, while drafting the Business Plan, I had to consider the company’s limited financial and human resources, ensuring that proposed initiatives were feasible within budget and staffing constraints. Additionally, the production capacity of the company’s facilities imposed limits on how quickly new projects or expansions could be implemented.

What I learned during my internship at Safety Carb

This experience enhanced my understanding of how financing can support entrepreneurial ventures and fast-track its success. I also learned to develop business plan creation skills, from market analysis to financial projections, and gained an overview into how sustainability can drive growth in competitive industries in today’s environment. On a more personal note, working closely within an entrepreneurial team also gave me a deeper appreciation for the challenges and opportunities that come with running a family business.

Financial concepts related my internship

Business Plan Development

One of the key financial concepts I applied during my internship was business plan creation. This involved integrating various components into a cohesive Excel that reflected the company’s strategic direction.

Cost-Benefit Analysis

I also relied on cost-benefit analysis to evaluate the potential return on investment for market expansion initiatives and the need for a validation of other eco-certifications. By assessing the trade-offs between costs and expected benefits, I was able to provide actionable recommendations backed-up by several hypotheses.

Cash Flow Management

Cash flow management was another important concept. For any entrepreneurial venture, it’s necessary to understand how to project and monitor cash flows and ensure that the company’s operations were financially sustainable.

Why should I be interested in this post?

If you’re interested in an entrepreneurial venture, finance and sustainability, I think this post provides a great ground to demonstrate how finance can serve as a catalyst for both business growth and positive environmental impact.

Useful resources

Safety Carb

About the author

The article was written in December 2024 by Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024).

My Internship Experience as a Brand Strategy Assistant at Accor

December 24, 2024December 7, 2024 by Marine SELLI

My Internship Experience as a Brand Strategy Assistant at Accor

In this article, Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024) shares her professional experience as a Brand Strategy Assistant at Accor, focusing on brand strategic analysis for a global portfolio of midscale brands.

About Accor

As a global hospitality industry leader, Accor has over 5,300 hotels throughout 110 countries. Accor has a wide variety of brands from luxury to economy, catering to different segments of customers – leisure travelers to business professionals. The company is known for its focus on innovation and sustainability and is always looking for ways to maintain a competitive advantage in a changing market. Today, the focus is on “augmented hospitality”. The brand strategy team in Accor’s global operations is responsible for creating and executing actions to promote value, brand equity, market presence and operational efficiency. In close partnership with regional relays and individual hotels, the team is able to adapt strategies in order to work with the specific dynamics of each market. Accor recently has been in the process of a strategic transformation, moving away from being a hotel owner and towards franchising and contracted management. Accor increases operational flexibility and minimizes financial risk by selling its brand name rather than owning the hotels directly and brand strategy is a key element of its global success. This strategy allows the company to concentrate on specific and focused competencies such as brand management, customer experience, but also innovation while transferring the financial and operational responsibilities of property ownership to third parties. By adopting a franchising and contracted management model, Accor also mitigates the risks associated with real estate ownership such as market fluctuations, high CAPEX ( capital expenditures ), and asset depreciation. This asset-light approach also provides greater agility, as it enables Accor to expand more rapidly and adapt to changing market conditions.

Logo of Accor.

Source: Accor.

As of December 5, 2024, Accor’s stock price has reached €46.08, reflecting a 45% year-to-date growth from its 52-week low of €32.47 on August 5th. This significant recovery underlines the investor’s confidence in the company’s strategic shift towards this asset-light model and its operational resilience. Moreover, Accor’s reentry into the CAC40 in March 2024 highlighted its resurgence as a key player in the French economy. The stock is now showing strong momentum, peaking at a 52-week high of €46.12, with daily trading volumes of 492,713 and a market capitalization of €11.23 billion.

Accor’s Historical Stock Data.

Source: Euronext.

My internship

During six months, I worked as a Brand Strategy Assistant for Accor, supporting global initiatives for three brands: Belonging to Mercure, Grand Mercure and Handwritten Collection. In my role, I had to simultaneously apply analytical know-how and communication skills to ensure strategic priorities were consistent across regions and individual properties. Because of my position, I was able to interact with a diverse range of stakeholders, including hotel managers responsible for implementing strategies on-site, regional leaders overseeing multiple properties, and corporate executives shaping the brand’s strategic vision. My role was to identify and help to develop the most impacting actions to drive results at the hotel level, and communicate these to the regional teams and the hotel managers.

My missions

When I was interning, a large part of what I did was take I did was take comprehensive data sets detailing every hotel Accor owns, including each property’s specific features and performance metrics such as occupancy rates, average daily rates (ADR), revenue per available room (RevPAR), and marketing campaign performance. Then I would synthesize it into a clear, actionable report. To accomplish that, I had to create Powerpoints that would portray brand strategies and performance insights to the regional teams and hotels all around the world as well as to the stakeholders at all levels with key performance metrics being highlighted. A second important part of my work was determining the ROI of different actions.This was computed by analyzing the incremental revenue generated from specific initiatives relative to their associated costs, such as marketing spend, operational investments, or promotional discounts. Through an analysis of global hotel-level data, I was able to identify which initiatives were having the greatest impact and provide recommendations on how to best utilize resources for maximum impact.

Required skills and knowledge

In this role I needed high-level synthesis skills to make sense of large amounts of data and report into documents. There was a need for proficiency in Excel to curate the data, and PowerPoint to convey effectively the information. I also needed analytical skills as I worked with financial metrics such as ROI and KPIs to analyze the success of initiatives. In addition, the role required deep collaboration and strong communication skills. I regularly engaged with a wide range of stakeholders, including regional teams, hotels, and agencies. I also developed expertise in working across different markets, understanding their unique characteristics, and aligning recommendations with each region’s specific goals and challenges.

What I learned

I learned a lot through my internship about how global strategies are applied to the local market in a fast developing and competitive industry. I acquired advanced skills in data analysis and synthesis and learned how to communicate complex information clearly to diverse audiences. In addition, I learned about the process of using financial metrics like ROI and KPIs to evaluate and prioritize strategic actions. On top of that, I believe this experience helped me develop my ability to think critically about how brand strategies can drive tangible results across different markets.

Finally, managing a hotel portfolio of this size (+1000 hotels) and complexity highlighted the difficulty of ensuring that every hotel aligns with Accor’s vision and delivers on its brand promises even though it is now its main business model. I had gained firsthand experience in learning how to navigate this challenge, contributing to initiatives designed to reinforce operational implementation and efficiency which is a key driver in hospitality business.

Financial concepts related my internship

I explain below three financial concepts related to your internship: Return on Investment (ROI), Key Performance Indicators ( KPIs) and Budget Management

Return on Investment (ROI)

ROI was one of the key financial concepts I applied. I analyzed the ROI of many different initiatives to identify which action led to the highest ROI and so resources were directed towards actions which led to the best results for driving hotel performance.

Key Performance Indicators (KPIs)

Another concept was KPIs. The hotel industry has its own specific metrics such as occupancy rates, average daily rate, and revenue per available room. These are essential for evaluating the success of each project and determining where improvements could be made.

Budget Management

Finally, my manager and I worked extensively on both budget management and budget allocation, which were critical aspects of my role. For budget allocation, we collaborated to distribute a strict and defined budget across different brands and within various global initiatives, such as brand campaigns, regional activations, and strategic projects aimed at strengthening Accor’s global market presence. I contributed by carefully evaluating the expected ROI of each initiative, analyzing key performance metrics like brand visibility, customer engagement, and revenue contributions. Together, we ensured that resources were allocated strategically to maximize the impact on a global scale. In terms of budget management, we worked closely to monitor spending across these global initiatives, ensuring compliance with the allocated budget. I actively tracked expenditures, flagged any deviations, and supported the development of adjustments to keep financial goals on track.

Why should I be interested in this post?

If you’re interested in exploring a mix of finance, strategy and marketing within a global organization, my experience at Accor demonstrates how financial metrics are used to drive impactful decisions in several business’ segments. It also highlights the importance of ensuring that global strategies translate into local success, offering valuable insights for those aspiring to work in corporate strategy, hospitality, or brand management.

Useful resources

Accor

About the author

The article was written in December 2024 by Marine SELLI (ESSEC Business School, (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024).

Factiva

December 30, 2024December 6, 2024 by Nithisha CHALLA

Factiva

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) delves into the essentials of Factiva, its features, and its applications, showcasing why it remains indispensable for professionals and academics alike working in business and finance.

Introduction

In the fast-paced world of business and finance, access to accurate, reliable, and up-to-date information is paramount. Factiva, a subscription-based database owned by Dow Jones & Company, is a cornerstone for researchers, financial analysts, and business professionals seeking high-quality data for decision-making.

The History of Factiva

Factiva was launched in 1999 as a joint venture between Dow Jones & Company and Reuters, two industry titans in financial news and information services. The aim was to create a unified platform catering to the growing need for consolidated global news and business data access. By integrating Dow Jones’s deep archives and Reuters’ real-time data capabilities, Factiva emerged as a pioneering solution for professionals in any sector, especially finance.

Logo of Factiva.

Source: the company.

Factiva is a premier business intelligence platform offering access to a vast array of global content, including news, company information, market data, and industry insights. It integrates thousands of sources from over 200 countries in more than 30 languages. These sources include major newspapers, trade journals, industry publications, and multimedia content.

In 2006, Dow Jones acquired full ownership of Factiva, streamlining its integration with other Dow Jones products, including The Wall Street Journal. Over the years, Factiva has evolved into a sophisticated tool incorporating artificial intelligence (AI) and machine learning for advanced data analytics, thus staying ahead in a competitive information services market.

Key Features

Certain key features of Factiva make it very useful as a database such as its Extensive Content Coverage, Search and Filter Options, Data Analytics and Visualization, Company Profiles, and Industry Reports.

As an example, the picture below presents the news about Apple in the Factiva Interface.

Factiva Interface

Source: the company.

Extensive Content Coverage

Factiva includes over 33,000 sources, such as The Wall Street Journal, The Financial Times, The New York Times, and Reuters. It features specialized publications in sectors like energy, healthcare, and technology. Archival content dates back decades, enabling trend analysis and historical research.

Search and Filter Options

Advanced search tools allow users to refine searches using keywords, topics, dates, or specific publications. Filters can narrow results by geography, industry, or company size.

Real-Time News

Factiva provides real-time updates on financial markets, economic changes, and global events. Alerts and notifications keep users informed of developments affecting their areas of interest.

Data Analytics and Visualization

Users can extract, analyze, and visualize data to identify patterns and insights. Tools include charts, graphs, and export options for seamless integration with other software.

Company Profiles and Industry Reports

Comprehensive profiles offer financials, competitors, and SWOT (Strengths Weakness Opportunity and Threats) analyses for thousands of companies. Industry reports provide market trends, regulatory updates, and forecasts.

Applications in Finance and Business

There are several applications of Factiva in finance and business such as Investment Research, Risk Management, Academic Research, and Public Relations and Marketing.

Investment Research: Financial analysts rely on Factiva for market trends, earnings reports, and competitor analysis to guide investment decisions.
Risk Management: Businesses use Factiva to monitor geopolitical events, economic risks, and compliance-related developments.
Academic Research: Factiva’s extensive archives are invaluable for finance students and researchers studying historical market behavior or conducting case studies.
Public Relations and Marketing: PR professionals use Factiva to monitor media coverage, track competitors, and evaluate public sentiment.

Advantages and Limitations of Factiva

Though there are multiple advantages of using this database there are also certain limitations which we have to consider.

Advantages of Factiva

Global Reach: Access to international publications ensures a well-rounded perspective.
Customizable Dashboards: Users can tailor the interface to prioritize relevant content.
Reliable Sources: Factiva aggregates data from reputable and verified sources.
Ease of Integration: APIs (Application Programming Interface) allow integration with other platforms for streamlined workflows.

Challenges and Limitations

Cost: Factiva’s subscription model can be expensive for individuals or small businesses. The pricing is on the request basis of the data.
Complexity: The platform’s depth may require training for optimal use.
Access Restrictions: Some content may have geographical or licensing restrictions.

Why Factiva Matters in 2024

With the explosion of information and the increasing risk of misinformation, Factiva’s role as a curated, reliable database is more critical than ever. Its ability to distill vast quantities of data into actionable insights makes it a vital tool for navigating the complexities of modern business and finance. Moreover, the integration of advanced technologies such as AI in Factiva enhances predictive analytics, enabling users to anticipate market movements and mitigate risks proactively.

Conclusion

Factiva exemplifies the power of information in driving informed decision-making. Its rich history, innovative features, and significant economic implications underscore its enduring relevance in a data-driven economy. Whether you’re a student aiming to excel in finance or a professional seeking a competitive edge, Factiva equips you with the tools to succeed in a knowledge-driven world.

Why should I be interested in this post?

By embracing Factiva, users, and students mainly gain not just data but the clarity and confidence to act on it effectively, ensuring better outcomes for businesses, academia, and industries at large.

Useful resources

Dow Jones Factiva – Global News Monitoring, Business Intelligence Platform

Dow Jones What is Factiva?

European University Institute (EUI) Factiva news and company database

Wikipedia Factiva

About the author

The article was written in December 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Treasury Bonds: The Backbone of U.S. Government Financing

December 3, 2024December 3, 2024 by Camille KELLER

Treasury Bonds: The Backbone of U.S. Government Financing

In this article, Camille KELLER (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) explains the purpose, significance, and global role of U.S. Treasury bonds.

Introduction

Treasury bonds (T-bonds) are long-term debt securities issued by the U.S. Department of the Treasury, fundamental to funding government operations and shaping economic policies. Backed by the “full faith and credit” of the U.S. government, they are regarded globally as benchmarks of stability and reliability.

These bonds play a dual role: domestically, they underpin the financial system and provide risk-free investment options, while globally, they influence capital flows and pricing in international markets. With their long maturities and predictable returns (if hold until maturity), Treasury bonds are a secure haven for investors in times of uncertainty.

This article explores the structure of Treasury bonds, their critical role in monetary policy, and their global significance in maintaining financial stability.

What Are Treasury Bonds and How Do They Work?

Treasury bonds are issued by the U.S. government to finance national projects and repay debt. They have maturities of 10 to 30 years and offer fixed semiannual interest payments, returning the principal amount at maturity.

Figure 1 below gives the evolution of the interest rate of Treasury bonds (30 years of maturity) over the period March 1977 – December 2024 (data from Federal Reserve Bank of St. Louis). You can download the Excel file for the historical data used to build the figure.

Figure 1. Evolution of the US Treasury bonds interest rate.

Source: Federal Reserve Bank of St. Louis.

These bonds are sold through public auctions, where competitive bidders specify desired yields, and non-competitive bidders accept the auction’s determined rate. This transparent process ensures fair pricing and liquidity, making T-bonds accessible to a wide range of investors.

Treasury bonds are considered among the safest investments globally, given the U.S. government’s ability to generate revenue through taxation and currency issuance. This security makes them a key component of institutional portfolios, particularly for pension funds and central banks looking for low-risk, reliable returns.

In financial markets, T-bonds serve as a benchmark for long-term interest rates. Their yields influence borrowing costs for mortgages, corporate bonds, and loans, directly affecting economic activity. During financial uncertainty, their reputation as safe-haven assets attracts significant demand, reaffirming their stability and importance in global markets.

The Role of Treasury Bonds in Monetary Policy

Treasury bonds are integral to U.S. monetary policy, serving as tools for the Federal Reserve to manage money supply and interest rates. Through open market operations, the Federal Reserve buys or sells Treasury bonds to inject or withdraw liquidity from the financial system. These actions influence borrowing costs and economic activity.

When the Federal Reserve purchases T-bonds, it lowers interest rates, encouraging borrowing and investment. Conversely, selling bonds tightens liquidity and increases rates, curbing inflation and slowing economic growth.

T-bonds are also key indicators of inflation expectations. Fixed coupon payments lose value in inflationary periods, prompting investors to demand higher yields as compensation. Their role as a measure of market sentiment makes them critical in assessing economic conditions.

The yield curve—a graph of yields on Treasury securities of varying maturities—offers further insight. An inverted yield curve, where short-term yields exceed long-term yields, is often a precursor to economic recessions, signaling investor concerns about future growth.

Through these mechanisms, Treasury bonds enable the Federal Reserve to balance economic growth, inflation, and employment, making them indispensable to monetary policy.

Treasury Bonds as a Global Benchmark

Treasury bonds extend their influence far beyond U.S. borders, forming the bedrock of the global financial system. Their stability, liquidity, and dollar-denominated nature make them indispensable to central banks, institutional investors, and sovereign wealth funds worldwide.

Central banks, particularly those in countries like China and Japan, hold large reserves of T-bonds to stabilize exchange rates, manage currency reserves, and hedge against market volatility. Their status as a low-risk investment ensures enduring demand, reinforcing the U.S. dollar’s dominance in global finance.

T-bonds also serve as a benchmark for pricing other financial instruments. Their yields represent the risk-free rate used in valuation models for equities, corporate bonds, and derivatives, shaping investment decisions across markets.

In times of crisis, Treasury bonds attract capital as investors seek security, lowering yields and providing stability to global markets. However, this reliance also introduces vulnerabilities; events like U.S. debt ceiling debates or credit rating downgrades can disrupt global confidence in Treasury securities.

Despite these challenges, the unwavering demand for Treasury bonds highlights their critical role in ensuring liquidity and stability in the international financial system.

Why Should I Be Interested in This Post?

This post is a valuable resource for students and professionals interested in understanding the mechanics of Treasury bonds and their broader implications. It highlights the intersection of government finance, monetary policy, and global markets, offering insights into how these instruments shape economies worldwide.

Useful Resources

U.S. Department of the Treasury

Federal Reserve Economic Data (FRED)

Federal Reserve

About the Author

The article was written in December 2024 by Camille KELLER (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

OAT: France’s Answer to Sovereign Bonds

December 3, 2024December 3, 2024 by Camille KELLER

OAT: France’s Answer to Sovereign Bonds

In this article, Camille KELLER (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) explains the role, structure, and significance of French government bonds known as Obligations Assimilables du Trésor (OATs).

Introduction

Obligations Assimilables du Trésor (OATs) are the backbone of France’s government debt strategy, providing a reliable means to finance public expenditures. These long-term debt securities are issued by the French Treasury and are central to the stability of France’s financial system.

OATs not only ensure the funding of state operations but also serve as a benchmark for the European financial markets. Their appeal lies in their fixed and predictable returns (if hold until maturity), making them a popular choice for institutional investors seeking stability in a historically low-risk asset.

This article dives into the structure and purpose of OATs, their relevance in monetary policy, and their role in the broader European and global financial system.

What Are OATs and How Do They Work?

OATs are long-term debt securities issued by the French Treasury to meet the government’s borrowing needs. The maturities of OATs ranges from 2 to 50 years. Investors receive fixed annual interest payments and the principal amount at maturity.

Figure 1 below gives the evolution of the OAT interest rate (10 year of maturity) over the period January 1986 – December 2024 (date from investing / Banque de France). You can download the Excel file for the historical data used to build the figure.

Evolution of the OAT interest rate.

Source: investing / Banque de France.

OATs are issued through public auctions managed by Agence France Trésor (AFT), the French government agency responsible for debt issuance and management. These auctions allow competitive and non-competitive bidding, ensuring a transparent and efficient process.

The reliability of OATs is grounded in the French government’s creditworthiness, supported by a robust and diversified economy. This low-risk profile attracts a wide range of investors, including pension funds, insurance companies, and foreign governments, making OATs a staple of institutional portfolios.

In financial markets, OATs play a vital role as benchmarks for euro-denominated securities. They influence pricing for corporate bonds, mortgages, and other fixed-income instruments within the Eurozone. Their stability and liquidity make them a key asset class in European financial systems.

The Role of OATs in Monetary Policy

OATs are an integral part of monetary policy in the Eurozone, serving as tools for the European Central Bank (ECB) and other institutions to influence financial conditions. As sovereign bonds, they are used in the ECB’s open market operations, including quantitative easing programs aimed at stabilizing the economy.

Through these programs, the ECB purchases OATs and other Eurozone bonds to inject liquidity into the financial system. This lowers interest rates, supports borrowing, and stimulates economic growth during periods of economic stagnation or crisis.

The yield on OATs is also a key indicator of France’s economic health and investor sentiment. Rising yields suggest increased borrowing costs for the government and heightened risk perceptions, while lower yields signal strong investor confidence and stability.

Additionally, OATs contribute to the overall functioning of the Eurozone’s financial architecture by providing a risk-free benchmark for pricing other securities. Their role in monetary policy extends beyond France, influencing financial markets across the European Union.

OATs as a Global Benchmark

OATs hold significance beyond France, serving as a critical component of global financial systems. Their euro-denominated nature positions them as an attractive option for central banks and institutional investors seeking diversification in foreign reserves.

Global investors often compare OATs with other sovereign bonds, such as U.S. Treasury bonds and German Bunds, to evaluate risk and return profiles. This competition reinforces OATs’ status as a key player in international capital markets.

In times of financial uncertainty, OATs provide a safe haven for investors looking to preserve capital. Their high liquidity and the French government’s strong credit ratings ensure consistent demand, particularly during economic turbulence.

However, OATs’ global importance also comes with challenges. Economic or political instability in France can impact investor confidence, affecting the broader European financial system. Despite these risks, their resilience and reliability continue to cement their role in global markets.

Why Should I Be Interested in This Post?

This post is a valuable resource for students and professionals interested in understanding OATs as a key financial instrument. It highlights their significance in government financing, monetary policy, and global markets, making them essential knowledge for those exploring careers in finance or economics.

Useful Resources

Agence France Trésor (AFT)

European Central Bank

Organisation for Economic Co-operation and Development (OECD)

About the Author

The article was written in December 2024 by Camille KELLER (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

Bridging Technology and Finance: Insights from a Marketing Internship in Public Bidding

December 1, 2024December 1, 2024 by Ziqing QIN

Bridging Technology and Finance: Insights from a Marketing Internship in Public Bidding

In this article, Ziqing QIN (ESSEC Business School, Bachelor of Business Administration (BBA), 2022-2026) shares her professional experience at VideoPower Technology as a Marketing Intern in public bidding.

About the company

VideoPower Technology Co., Ltd., founded in 2012 and headquartered in Beijing, China, is a leading provider of technological solutions for government procurement and public bidding. The company’s innovative tools and platforms enable government agencies to procure goods and services transparently and efficiently while empowering businesses to compete fairly in the marketplace.

VideoPower specializes in advanced analytics, compliance management, and bidding process automation. For example, its flagship platform “BidMaster” has been used in over 300 government projects, helping businesses win contracts totaling more than 50 million RMB. One notable success story involved assisting a logistics company in securing a provincial transportation contract worth 10 million RMB by optimizing their bidding strategy using BidMaster’s analytics.

I worked in the Marketing and Business Development team, which was pivotal in identifying market opportunities and crafting strategies to position the company as an industry leader. During my internship, I contributed to the development of campaigns targeting public procurement opportunities and collaborated with Finance and Operations to prepare competitive bids. A key achievement was securing a regional government IT infrastructure project valued at 3 million RMB, a testament to the team’s strategic alignment and execution capabilities.

Logo of VideoPower Technology.

Source: the company.

My internship

As a marketing intern at VideoPower Technology Co., Ltd., I had the opportunity to work directly on public bidding projects that shaped my understanding of the procurement process. One of the most impactful experiences was contributing to a successful bid for a regional government’s information technology (IT) infrastructure project valued at 3 million RMB. This hands-on involvement taught me how to collaborate with multiple departments, such as finance and operations, to ensure that our proposals were both competitive and aligned with strategic objectives.

My missions

Throughout my internship, I was responsible for a variety of key tasks that directly supported the company’s bidding efforts:

Performed in-depth market research on over 50 government procurement projects, identifying opportunities in sectors such as IT and construction.
Played a pivotal role in crafting proposals, including a winning bid for an 8 million RMB service contract that secured a 5-year partnership with a municipal government.
Evaluated competitors’ pricing and strategies, which led to a reduction in bid preparation time and increased success rates.
Worked closely with cross-functional teams to ensure compliance with government regulations, achieving a 95% approval rate for submitted proposals.

Required skills and knowledge

My role required both technical and interpersonal skills. I leveraged analytical tools such as Excel to create detailed cost models, ensuring proposals were competitive and profitable. Proficiency in project management software, such as Trello and Microsoft Project, allowed me to prioritize tasks and meet tight deadlines. Soft skills, including communication and teamwork, were vital for presenting market insights to senior management and fostering collaboration with other departments. Additionally, my understanding of government procurement regulations enabled me to identify compliance risks and avoid potential setbacks.

What I learned

This internship was a crash course in the complexities of public procurement and how to navigate them effectively. By working on large-scale projects, I gained a solid understanding of cost analysis, competitive pricing, and risk mitigation. For example, I analyzed historical bid data to anticipate competitor pricing, which directly influenced our proposal strategies. I also learned how to balance profitability with client requirements, an essential skill for roles in finance and consulting. Beyond the technical aspects, this experience deepened my appreciation for cross-departmental collaboration and the importance of clear communication in achieving shared goals.

Financial concepts related to my internship

During my internship, I applied several financial concepts that were essential to the bidding process. These included cost estimation and budgeting, pricing strategies, and risk assessment.

Cost Estimation and Budgeting

Cost estimation and budgeting were fundamental aspects of my role. I learned how to break down project costs into direct and indirect categories, ensuring that every expense was accounted for. By accurately estimating costs, the company could prepare bids that were both competitive and realistic. This process involved analyzing historical data, consulting with project teams, and forecasting potential risks that might impact the budget.

Pricing Strategies

Developing effective pricing strategies was crucial to winning bids while maintaining profitability. I analyzed competitors’ pricing models and market trends to determine optimal pricing for our proposals. This involved striking a balance between offering an attractive price to government clients and ensuring that the company’s financial goals were met. By leveraging market intelligence, I contributed to crafting proposals that highlighted the company’s value proposition.

Risk Assessment

Risk assessment played a significant role in preparing bids. I worked on identifying potential risks, such as fluctuating material costs, project delays, and regulatory challenges, and developed strategies to mitigate these risks. By addressing these uncertainties in advance, the company was able to submit bids with confidence, minimizing the likelihood of unforeseen challenges during project execution.

Why should I be interested in this post?

This post highlights how an internship in public bidding applies essential financial concepts like cost estimation, pricing strategies, and risk assessment. These skills are highly relevant for ESSEC students pursuing careers in finance, consulting, or corporate strategy.

It also shows how practical experiences complement academic learning, preparing students for roles in investment banking, business development, and beyond.

Useful resources

Below are some valuable resources related to public procurement, market analysis, and project management that were relevant to my internship experience:

Government Procurement Platforms

PLACE – Plateforme des Achats de l’État: The official French government procurement platform, providing information on public tenders and bidding processes.

Market Analysis Tools

Statista: A leading platform for market statistics and industry insights.

Google Tag Manager: A free tool for managing and analyzing website tags, helpful for digital marketing analysis.

Business and Investment Resources

Business France: A national agency that supports the international development of French businesses and promotes investments in France.

Project Management Tools

Microsoft Project: A comprehensive tool for planning, executing, and tracking projects.

Trello: A flexible project management tool that helps organize tasks using a Kanban board approach.

About the author

The article was written in December 2024 by Ziqing QIN (ESSEC Business School, Bachelor of Business Administration (BBA), 2022-2026).

November 2024: Top Posts of the SimTrade Blog about Professional Experiences

January 10, 2025November 30, 2024 by Prof. François LONGIN

November 2024: Top Posts of the SimTrade Blog about Professional Experiences

I have selected very interesting posts about a very interesting topic: professional experiences from alumni of the SimTrade course.

Most Read Posts

Please find below the most read posts from the SimTrade blog about professional experiences:

Learn about the professional experience of a management controller at CarFuel. A practical insight into the role and its challenges in the field of financial management!

▶ Medine ACAR Mon expérience professionnelle en tant que contrôleuse de gestion chez Carfuel

Explore the professional experience of a credit analyst at Targobank. Gain a better understanding of the role and its responsibilities in the banking sector!

▶ Matthieu MENAGER My professional experience as a credit analyst at Targobank

Discover the professional experience of a quantitative analyst intern at FinDoc Financial Services.

▶ Praduman AGRAWAL My Professional Experience as a Quantitative Analyst Intern at Findoc Financial Services

Learn about the professional experience of a Global Development and Learning Intern at Danone. Get insights into the key responsibilities and skills needed for this role in a global company!

Jayna MELWANI My Professional Experience as a Quantitative Analyst Intern at Findoc Financial Services

Explore the professional experience of an Associate Auditor at PwC’s Digital Data Hub. Discover the role’s key tasks and the skills required in a leading auditing firm!

▶ Federico MARTINETTO My professional experience as a PwC Associate Auditor in the Digital Data Hub

Professional experiences are invaluable for understanding the practical applications of finance theory and gaining insights into the industry. By learning from others, you can anticipate challenges, discover new job opportunities, refine your career strategy. The November 2024 top posts on the SimTrade blog are designed to inspire and guide you on your professional journey. Do not hesitate to contact the contributors to ask them questions about their internship and get their contacts in the firms they work for.

SimTrade choice

Have a look on the post below!

Learn about the internship experience of a Structured Finance Analyst at Société Générale. Discover the tasks and skills involved in this dynamic role in corporate finance!

▶ Mickael RUFFIN My Internship Experience as a Structured Finance Analyst at Société Générale

My Apprenticeship Experience as Digital Strategy Officer at Gan Assurances

December 25, 2024November 28, 2024 by Camille KELLER

My Apprenticeship Experience as Digital Strategy Officer at Gan Assurances

Camille Keller Digital Strategy Officer at Gan Assurances

In this article, Camille KELLER (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) shares her two-year experience as a Digital Strategy Officer at Gan Assurances, a subsidiary of Groupama, in the Marketing and Communication department.

About Gan Assurances

Gan Assurances, a subsidiary of the Groupama group, is a major player in the French insurance market. Specializing in comprehensive coverage for individuals and businesses, the company offers a wide range of insurance solutions, including property, health, and life insurance. Gan Assurances prides itself on a customer-centric approach and a robust network of general agents spread across the country.

Logo of the company.
Logo of Gan_Assurances
Source: the company.

The Marketing and Communication department plays a pivotal role in enhancing the visibility of Gan Assurances through innovative campaigns and strategic digital initiatives. The team focuses on optimizing customer engagement, driving brand awareness, and supporting agents with tools and strategies tailored to their communication needs.

My Apprenticeship

From 2022 to 2024, I completed a two-year apprenticeship as a Digital Strategy Officer at Gan Assurances. I worked in the Marketing and Communication department, where I contributed to digital communication strategies and optimized the company’s online presence. My role involved a combination of strategic analysis and hands-on creative work, enhancing the effectiveness of digital campaigns.

My Missions

During my apprenticeship, I was responsible for analyzing and interpreting key performance indicators (KPIs) to evaluate the effectiveness of digital communication campaigns. Based on the results, I adjusted strategies to optimize engagement and return on investment (ROI).

In addition, I managed the editorial calendar and created engaging content for platforms like LinkedIn and Facebook. This required combining creativity with strategic messaging to align with the brand’s goals.

Another major aspect of my role was mentoring eight cohorts of general agents, equipping them with best practices in digital communication. This involved conducting training sessions and providing them with the tools needed to amplify their online presence effectively.

Lastly, I developed data-driven communication strategies, using performance insights to recommend digital investment channels and enhance campaign effectiveness.

Required Skills and Knowledge

To succeed in this role, I needed strong analytical and creative skills. My ability to interpret performance data was crucial for adjusting campaign strategies in real time. I also needed proficiency in digital marketing tools and content creation software, such as Canva and Adobe, to design engaging visuals. Strong communication skills were vital for mentoring agents and creating compelling content. Additionally, a solid understanding of social media platforms and their algorithms helped me tailor content to the target audience.

What I Learned

This apprenticeship greatly expanded my skill set. I gained a deep understanding of digital communication strategies, from content creation to performance analysis. The experience enhanced my ability to interpret data and adjust strategies to optimize campaign performance. I also honed my leadership and mentoring skills by guiding agents through best practices in digital communication. One of the most valuable lessons was learning how to balance creative content with data-driven decisions to achieve optimal engagement and brand visibility.

Financial Concepts Related to My Apprenticeship

Return on Investment (ROI)

One of the essential financial concepts in my role was Return on Investment or ROI. By analyzing the ROI of digital communication campaigns, I assessed their profitability and efficiency. This involved calculating the ratio of the campaign’s net profit to its cost, allowing us to prioritize strategies that delivered the highest value for the budget spent. Understanding ROI helped guide decisions on where to allocate resources to maximize impact.

Budget Allocation

Managing the budget for digital investments required a strong grasp of allocation principles. I worked on distributing funds across different channels and campaigns to achieve optimal reach and engagement. This required balancing costs with expected outcomes, ensuring every euro spent contributed to measurable results. Monitoring these allocations also enabled the team to make data-driven adjustments during campaigns to improve performance.

Key Performance Indicators (KPIs)

Tracking and interpreting KPIs was central to my work. Metrics such as click-through rates, engagement rates, and conversion rates provided insights into campaign success. For instance, I used KPIs to identify underperforming areas and adjusted strategies accordingly. These metrics served as a financial health check for campaigns, ensuring that resources were spent effectively and objectives were met.

Why Should You Be Interested in This Post?

This post is a valuable read for students interested in combining creative and analytical skills within the marketing and communication fields. It demonstrates how financial principles such as ROI, budget allocation, and KPIs are integral to optimizing marketing strategies. This experience can inspire ESSEC students to explore roles where strategy meets creativity, providing real-world business impact.

Useful resources

Gan

About the Author

The article was written in November 2024 by Camille KELLER (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

The Premium on coins like Elizabeth II

December 30, 2024November 26, 2024 by Nithisha CHALLA

The Premium on coins like Elizabeth II

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) analyzes the economic factors explaining the premium on the collectible coins like the Elizabeth II coins.

Introduction

The financial world has long recognized the significance of precious metals, particularly gold, as a reliable store of value. However, beyond the traditional investment vehicles such as bullion bars and coins, there exists a subcategory of numismatic items—collectible coins—whose premiums can exceed the value of the metal content itself. Coins like the Elizabeth II coin series represent a growing segment of this market. While these coins are often minted with a fixed gold or silver content, their value can significantly outpace the value of the metal they contain. The difference between the face value or gold value of an Elizabeth II coin and its market value is commonly referred to as the premium. This difference represents a premium that can explained by several factors.

Elizabeth II bullion
Elizabeth2 bullion
Source: Hatton Garden Metals

Computation of the premium on coins like Elizabeth II

As an example, let us consider a 2022 Queen Elizabeth II Gold Sovereign coin. The gold content for this coin is 7.32 grams (0.2354 troy ounces of gold). In the beginning of 2024, the spot price of gold is $2,000 per troy ounce (or approximately £1,580 per troy ounce). The gold value (or intrinsic value) of this coin is equal to $470 (=0.2354×2,000) or approximately £372. The market value (including the premium) is $600 (or approximately £475). The premium, defined as the difference between the market value and the gold value, is then equal to $130 (=$600−$470) or approximately £103.

The Investment Potential of Numismatic Coins

Numismatic coins, such as those featuring Queen Elizabeth II, have long captured the attention of collectors and investors alike. Beyond their historical and cultural significance, these coins hold substantial financial value, often trading at a premium above their intrinsic metal content. Factors such as rarity, condition, historical context, and market demand significantly determine their market price and explain the premium. In this article, we delve into the economic factors of coins premium, focusing on the Elizabeth II series, their appeal, and their role as an alternative investment vehicle.

Understanding the Premium: What Sets These Coins Apart?

A premium refers to the additional cost above the intrinsic value of a coin’s metal content. For example, if a gold coin contains one ounce of gold, its inherent value will be based on the current market price of gold. However, a coin like the Elizabeth II Gold Coin could carry a premium because of its collectibility, historical significance, rarity, and demand among collectors. This premium is influenced by several factors: mintage numbers and rarity, condition and grading, and demand and market Trends.

Mintage Numbers and Rarity

The mintage number of a coin significantly influences its rarity, and by extension, its premium. Coins with limited mintage, such as special editions or proof versions of the Elizabeth II coin, typically see higher premiums due to their scarcity. For instance, a limited-edition Elizabeth II coin series celebrating the Queen’s milestone events (e.g., her Diamond Jubilee) would likely command a higher price compared to regular-issue coins.

Condition and Grading

Coins are often graded for their condition, which impacts their value. Coins in pristine condition (often graded as MS70 or PF70, which indicates perfect condition) carry a higher premium. This is especially true for coins preserved in perfect, uncirculated condition, making them rare in the market.

Demand and Market Trends

The demand for collectible coins is often driven by trends in the collector community. When a coin series, like the Elizabeth II series, becomes popular among investors and collectors, its premium increases as more people compete for a limited supply. Economic factors, including inflation, interest rates, and even geopolitical events, can also spur increased interest in collectible coins as alternative investments.

Notable Elizabeth II Coins

I give below a list of notable Elizabeth II coins:

1953 Coronation Crown: Issued to commemorate Queen Elizabeth II’s coronation, this coin is a prime example of how historical events can add numismatic value. While its melt value is minimal, its collectible value often exceeds 10 times its base worth.
2002 Golden Jubilee Coins: Struck in limited numbers, these coins saw a steep rise in market value due to their rarity and the significance of the Golden Jubilee celebration.
2022 Memorial Coins: Following Queen Elizabeth II’s passing, the Royal Mint issued special memorial coins, which have become highly sought after. Early buyers have seen considerable price appreciation, driven by emotional and historical factors.

Elizabeth II coin for the 1953 Coronation Crown
Elizabeth II for the 1953 Coronation Crown
Source: The Royal Mint

Elizabeth II coin for the 2002 Golden Jubilee
Elizabeth II for the 2002 Golden Jubilee
Source: The Royal Mint

Elizabeth II coin for the 2022 Memorial
Elizabeth II for the for the 2022 Memorial
Source: The Royal Mint

The Financial Benefits of Investing in Premium Coins

Diversification of Investment Portfolio

In the world of investing, diversification is often touted as one of the key strategies for managing risk. Coins like the Elizabeth II series offer a unique opportunity for diversification. While traditional assets such as stocks, bonds, and real estate are subject to market fluctuations, gold, and silver coins tend to be less volatile and are often viewed as a hedge against inflation or economic uncertainty (see Erb and Harvey (2013, 2024) for a discussion).

Additionally, premium coins are not just an investment in the precious metals market; they also offer exposure to the world of collectibles, which can experience appreciation independent of broader financial markets. Investors looking to diversify into non-correlated assets may find that numismatic coins, like those in the Elizabeth II series, provide an attractive avenue for diversifying their portfolios.

Appreciation Potential

One of the primary financial attractions of premium coins is their potential for appreciation over time. The value of a collectible coin is driven by both the fluctuating value of the precious metal it contains (gold, silver, etc.) and the coin’s numismatic value. As demand for specific coins rises, their premiums can increase exponentially.

For example, a gold Elizabeth II coin bought at a premium in the 1990s could be worth several times its original purchase price today, due to both the rising price of gold and the increasing demand for coins tied to the late Queen’s reign. Investors in these coins have seen capital appreciation not only from the metal price but also from the unique value placed on these coins by collectors.

Figure 1 below gives the evolution of the gold price over the period January 1971-September 2024.

Figure 1. Evolution of the Gold price
Gold price chart January 1971-September 2020
Source: Wikipedia

Tax Benefits and Legacy Planning

In some jurisdictions, numismatic coins, such as the Elizabeth II gold coins, are subject to favorable tax treatment. Depending on the country, these coins may be exempt from certain sales taxes or capital gains taxes, further enhancing their attractiveness as an investment. The tax advantages, when combined with their appreciation potential, make them an appealing choice for long-term investors seeking wealth preservation.

Additionally, premium coins are often used in legacy planning due to their tangible value, portability, and emotional appeal. Families pass down coin collections across generations, ensuring that the wealth embedded in these coins remains intact and grows over time.

Risks and Considerations for Investors

While coins like those featuring Elizabeth II can be lucrative investments, they are not without risks:

Market Volatility: The numismatic market can be unpredictable, with premiums fluctuating based on collector sentiment and economic conditions.
Liquidity Challenges: Selling collectible coins at premium prices requires access to the right buyer market, which may not always be readily available.
Authentication and Grading Costs: Ensuring the authenticity and proper grading of a coin often incurs additional costs, which should be factored into investment decisions.

Finally why Coins Featuring Elizabeth II Remain an Attractive Investment?

Coins bearing Queen Elizabeth II’s effigy offer a blend of historical appeal, tangible value, and investment potential. The enduring legacy of her reign adds a unique emotional and cultural dimension that elevates their demand. From a financial perspective, these coins offer diversification benefits, a hedge against inflation, and the potential for significant capital appreciation.

Conclusion

Investing in premium coins such as those featuring Elizabeth II requires a balance of sentiment and financial analysis. While their cultural and historical value is undeniable, their economic worth hinges on factors like rarity, condition, and market trends. For investors, these coins are more than just collectibles; they represent a fusion of history and finance, offering opportunities for both preservation of wealth and long-term growth.

Why should I be interested in this post?

As financial markets become more volatile and inflationary pressures rise, the appeal of premium coins as an alternative investment will likely continue to grow. These coins not only provide an investment in precious metals but also represent a tangible, legacy-building asset that can be passed down through generations. For students seeking to understand and diversify their portfolios, learning about the premium on collectible coins presents an intriguing opportunity with considerable upside potential.

Useful resources

Academic research

Erb, C.B., and C.R. Harvey (2013) The Golden Dilemma. Financial Analysts Journal 69 (4): 10–42.

Erb, C.B., and C.R. Harvey (2024) Is there still a Golden Dilemma. Working paper.

Business

US gold bureau The History and Evolution of Queen Elizabeth II on Coins

Change Checker The History of Queen Elizabeth II Coins

The Royal Mint Museum Her Late Majesty Queen Elizabeth II on coins

Physical Gold Gold Coin Premiums Explained

Treasure Coast Bullion Group Gold and Silver Premiums: What You Need to Know

American Bullion What Does MS70 Mean, and Why Is It Important?

Other

Wikipedia Gold

Wikipedia Two pound coin

Rare Coins Vault Top 10 Most Valuable Elizabeth II Coins! | Rare Coins Worth Millions (YouTube video)

About the author

The article was written in November 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

My internship experience at Talent Carriage

December 26, 2024November 20, 2024 by Vardaan CHAWLA

My internship experience at Talent Carriage

In this article, Vardaan CHAWLA (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2020-2023) shares his experience as a Business Development intern at Talent Carriage a human resource shared services startup in New Delhi, India.

About Talent Carriage

Talent Carriage is a New Delhi-based startup that brings innovation to Human Resources by specializing in Human Resource Shared Services (HRSS). It was launched with the vision of simplifying HR processes for small and medium organizations, they offer a unique solution for businesses seeking efficiency in their human resource process and cost reduction.

Logo of the company.
Logo of Talent Carriage
Source: the company.

What is shared services: Talent Carriage was established with a focus on the evolving needs of modern workforces and companies, Talent Carriage leads the shared services model for HR for medium and small-scale companies in India. This model centralizes all common HR tasks, such as administration, payroll, benefits, and recruitment processing, into a centralized unit. Centralization of all common tasks helps free the organization’s HR professionals and allows them to focus on more strategic and big-picture tasks like the growth and development of their employees.

Benefits for Businesses of All Sizes: Even though Talent Carriage’s services are well suited for organizations of all sizes their core offerings are inclined towards startups and growing businesses. They prioritize streamlining processes and the use of flexible technology which can help organizations reduce costs.

This shared services has three great benefits:

Increased Efficiency: In order to improve efficiency and eliminate redundancies for the client. Talent Carriage helps the client to centralize their HR processes like payroll and benefits. With such redundant work out of the way, the HR personnel have the time and capacity to lead strategic initiatives that help in the company’s success.
Standardization and Consistency: The shared services model also leads to consistent HR practices across an organization. Businesses with multiple locations and/or departments derive great benefits from HRSS.
Enhanced Employee Experience: The employees have a single point of contact for all their HR inquiries. This centralized approach leads to a smoother and more efficient experience.

Three-Step Engagement Model: Talent Carriage implements its HRSS solutions in an organized manner. Their three-phase approach of interaction includes:

Suggest: Consulting with the customer to ascertain their unique HR needs and objectives constitutes the first step. Then they analyse the organization’s current HR processes and recommend a suitable shared services model for them.
Implement: After a plan is finalized by both the client and talent carriage. It is Implemented and Talent Carriage trains staff on the new processes and help with a smooth transition.
Maintain: They also offer continuous support to the client organization. Talent carriage’s work goes far beyond initial implementation to ensure the success of their HRSS model within the organization. They also provide technical assistance and monitor for ongoing problems and optimization opportunities.

By leveraging Talent Carriage’s expertise in HRSS, businesses can achieve significant improvements in efficiency, cost-effectiveness, and employee experience.

My Internship at Talent Carriage

In the summer of 2023, I did my internship at Talent Carriage. There I had the opportunity to explore the exciting world of HRSS and business development (BD). Talent Carriage is a dynamic startup in New Delhi, India. It is the leader of how small and medium organizations manage their HR and I was excited to be a part of its journey. My Internship was in the Business Development and Sales department of the company where I had the opportunity to hone my skills in identifying new business opportunities and displaying the value proposition of Talent Carriage’s HRSS model to as many organizations in India as I could.

My Missions

As a BD intern, I was on the hunt for new markets and organizations to spread the word about talent carriage and the benefit of HRSS. My job was to conduct market research and competitive analysis which helped me build a 20% bigger database of potential client databse. In order to complete this process, I had to research market trends, pinpoint businesses in need of HR process optimization, and assess the competitive environment. Following this, I also carried out surveys to learn more about the HR requirements of various Indian companies. I was able to create buyer personas and comprehensive profiles of our prospective customers thanks to the survey. Together with the sales team, these personas assisted me in developing BD strategy and practical insights. In addition, we were able to customize our strategy for various clientele groups, which improved the focus and efficacy of our sales pitches.

Required Skills and Knowledge

In order to succeed in this challenging role. I needed several skills including Research and analytical abilities which were very important in understanding and analyzing market trends. After this, I also improved my communication skills in this role both written and verbal. While conducting surveys and sending cold emails and sales pitches I honed my skill of communication by effectively communicating the benefits of Talent Carriage’s service. Building rapport and effectively presenting our solutions were key aspects of the role, requiring strong interpersonal and presentation skills.

What I Learned at Talent Carriage

This amazing summer internship helped me learn and hone various skills and pushed me beyond my comfort Zone. To begin with I gained a deep understanding of HR and how transformative HR-shared services can be for all organisations. The fast-paced and challenging environment also helped me hone my research and analytical capabilities. The most important skill I learned was clear and concise communication. This skill was crucial to creating good sales pitches and cold emails. Identifying the needs of organizations and tailor-making a sales pitch and presenting it compellingly.

Financial concepts related to my internship

Customer Acquisition Cost (CAC)

I found that knowing CAC was essential to the Business Development position at Talent Carriage. The average cost of gaining a new client is referred to as CAC. For BD teams to evaluate the effectiveness of their sales activities, this statistic is crucial. Talent Carriage calculates the cost per lead generated and, eventually, the cost of obtaining a new client who signs up for their HRSS services by examining our research and outreach efforts. An effective sales approach is shown by a low CAC in comparison to the revenue a client generates. Our understanding of CAC, helped us adjust our outreach strategies to focus on the most economical market groups and improve the overall sales strategy.

Return on Investment (ROI)

While CAC focuses on the cost of acquiring a client, ROI analyzes the return on investment generated by a client. ROI would be determined by comparing the revenue from Talent Carriage’s HRSS services against the costs associated with acquiring and retaining those clients. We were able to evaluate the effectiveness of Talent Carriage’s business model and identify areas that required improvement thanks to our understanding of ROI. When sales presentations emphasize the financial benefits for potential customers and demonstrate the favorable return on investment (ROI) that the HRSS model produces for clients, they become more appealing.

What I learned during my internship

The three main things I learnt during my internship at Talent Carriage are as follows: I gained information about the structure and working environment at Talent Carriage. I learnt about digital transformation, particularly HRSS Proccess. I acquired an insight about the soft and hard skills required to work as an Business development Intern.

Useful resources

Talent Carriage

Bhavna Deuglo What is HRSS and How Can It Benefit Your Business?

About the author

The article was written in November 2024 by Vardaan CHAWLA (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2020-2023).

The Gold Standard

December 30, 2024November 19, 2024 by Nithisha CHALLA

The Gold Standard

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) explores the origins, implementation, and eventual decline of the gold standard, leading to the establishment of the Bretton Woods system, which redefined global financial stability in the post-World War II era.

Introduction

The concept of using gold as a basis for currency emerged in the early 19th century, aiming to provide a universally accepted standard of value for trade and to reduce inflation. Countries agreed that their paper currency could be exchanged for a fixed amount of gold, which limited the amount of money governments could issue, thus preventing inflation.

The United Kingdom was one of the earliest adopters, establishing the gold standard formally in 1821. The system allowed Britain to stabilize its currency and promote global trade, reinforcing its position as a leading global economic power. This model inspired other countries to adopt similar standards. By the late 19^th century, several countries, including the United States (1900), Germany (1873), and France (1873), adopted the gold standard. The U.S. had been on a de facto gold standard since 1879 and later officially adopted the gold standard in 1900 with the Gold Standard Act, and the practice became increasingly popular as global trade expanded.

The Gold Standard’s Role in Economic Stability

Some key features of the classical gold standard are exchange rates, price stability, and discipline in monetary policy.

Stabilizing Exchange Rates

One of the primary benefits of the gold standard was stable exchange rates, which encouraged international trade and investment. By fixing the value of their currencies to a certain amount of gold, countries reduced currency fluctuation, making trade more predictable.

Preventing Inflation

Price stability (low inflation) was demanded since governments could only print as much currency as their gold reserves permitted. The gold standard limited excessive money printing and helped prevent inflation.

International Trust and Trade

The gold standard fostered trust among trading nations because gold-backed currencies reduced the risk of devaluation. Trade partners knew they were dealing in stable, reliable currencies.

Countries that Opted Out of the Gold Standard

According to an article published by Cooper, R Dornbusch and Hall (1982), until the late 19^th century most countries were on a bimetallic standard, interspersed with occasional periods of inconvertible paper (as in the United States in the 1780s and the 1862-78 period, or Britain from 1797 to 1821). Some countries, such as China and Mexico, were only based on silver until the twentieth century. Holland and Belgium even switched from bimetallism to silver alone in 1850 on the grounds (following the California gold discoveries in 1848) that gold was too unstable to provide the basis for the currency. The United States adopted a de facto gold standard with the resumption of specie payment on the Civil War greenbacks in 1879 (some would say it was formal since the standard silver dollar was dropped from the coinage in the “crime of 1873”); it moved formally with the Gold Standard Act of 1900.

Though several countries opted for the classical gold standard, there were still many countries who chose to opt out because of economic challenges:

Economic Challenges and Opt-Outs: Some countries struggled to adopt the gold standard, especially those with weaker economies or limited gold reserves. For example, several Latin American countries and parts of Eastern Europe either delayed adopting the standard or abandoned it after a short period due to limited gold resources.
Flexibility vs. Stability Debate: Countries facing frequent economic crises found the gold standard too restrictive. By adhering to a strict gold-based system, governments had less flexibility to respond to economic downturns, which later became a crucial issue in the Great Depression.

The Great Depression and the Decline of the Gold Standard

During the Great Depression (1929–1939), many countries faced extreme economic challenges. The rigid nature of the gold standard prevented governments from increasing the money supply to stimulate growth, worsening the economic crisis.

In response, several major economies, including the United Kingdom (1931) and the United States (1933 under President Franklin D. Roosevelt), abandoned the gold standard to regain control over their monetary policies. This allowed them to inject liquidity into the economy, stimulating growth and reducing unemployment. The gold standard was briefly reinstated in a modified form, known as the “gold exchange standard,” but it was ultimately unsustainable in the post-Depression global economy.

Transition from the Gold Standard to the Bretton Woods System

After World War II, the world needed a new financial system to prevent the economic instability that had contributed to the Great Depression. The gold standard was no longer viable, but there was still a need for a stable international currency framework.

In 1944, delegates from 44 nations gathered in Bretton Woods, New Hampshire, to establish a new global monetary system. The Bretton Woods system introduced a modified form of the gold standard where the U.S. dollar became the central reserve currency, convertible to gold at a fixed rate of $35 per ounce.

Some key features of the Bretton Woods system were:

U.S. Dollar as the Global Reserve: Countries agreed to peg their currencies to the U.S. dollar, and in turn, the dollar was backed by gold. This established the U.S. as the central player in global finance.
International Monetary Fund (IMF) and World Bank: The Bretton Woods conference also established the IMF and the World Bank to oversee exchange rates, provide financial assistance, and promote economic development.

The figure below shows the dollar conversion price to gold bullion for the period 1914-2024.

Dollar conversion price to gold bullion for the period 1914-2024

Source: Wikipedia

By the 1960s, the U.S. began running significant trade deficits, and its gold reserves dwindled as foreign governments exchanged dollars for gold. The U.S. could no longer sustain the gold-dollar convertibility at the set rate of $35 per ounce. In 1971, President Richard Nixon announced the end of dollar convertibility to gold, effectively ending the Bretton Woods system. This decision led to a floating exchange rate system, where currencies were no longer tied to gold but fluctuated based on market forces.

Conclusion

The gold standard played a vital role in creating a stable economic environment and promoting international trade in the 19^th and early 20^th centuries. However, its rigidity limited countries’ ability to respond to economic crises, eventually leading to its abandonment during the Great Depression. The Bretton Woods system provided a middle ground, establishing a dollar-based standard that aimed to maintain stability while allowing more flexibility. However, as global economies evolved, even this system proved unsustainable, paving the way for today’s floating exchange rate regime.

Why should I be interested in this post?

Gold has been a key financial asset for centuries, acting as a store of value, a hedge against inflation, and a safe-haven asset during economic crises. Understanding its investment options helps students grasp fundamental market dynamics and investor behavior, especially during periods of economic uncertainty.

Useful resources

Academic research

Cooper RN, R Dornbusch, RE Hall (1982) The Gold Standard: Historical Facts and Future Prospects, Brookings Papers on Economic Activity, 1982(1): 1-56.

Business

World gold council The Bretton Woods System

Federal Reserve History Creation of the Bretton Woods System

Other

Wikipedia Gold

Wikipedia Bretton Woods system

About the author

The article was written in November 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Fort Knox: the US Gold Reserve

December 30, 2024November 19, 2024 by Nithisha CHALLA

FortKnox: the US Gold Reserve

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) explores the history of Fort Knox, its economic significance, the myths surrounding it, and its enduring importance.

Introduction

The origins of Fort Knox date back to the 1930s during the Great Depression, a period of severe economic downturn in the United States (U.S.). In 1936, the U.S. government constructed the facility in response to the need for a secure location to house the country’s growing gold reserves, which were essential to backing the dollar under the gold standard. The construction was overseen by the U.S. Treasury Department, and the fort was designed with cutting-edge security for its time, utilizing 16,000 cubic feet of granite, 750 tons of reinforced steel, and 4,200 cubic yards of concrete.

The figure below shows the Fort Knox facility in Kentucky.

Fort Knox
Gold reserve in the United States, Fort Knox
Source: US Funds

The legislative foundation of Fort Knox’s role in safeguarding America’s wealth comes from the Gold Reserve Act of 1934. This act established the control and management of the nation’s gold to stabilize the economy. The Treasury’s decision to centralize gold in Fort Knox allowed for more efficient management and bolstered public confidence in the nation’s monetary policy. The fort’s massive, highly fortified structure made it an impenetrable vault, setting a global standard for secure storage facilities.

The Role of Fort Knox in U.S. Financial History

During the era of the gold standard, Fort Knox was critical in maintaining economic stability, as the gold stored within it provided a foundation for the dollar. This system allowed the U.S. government to prevent inflation by limiting the amount of money in circulation to the amount of gold held in reserves, fostering economic stability. Fort Knox’s immense reserves helped ensure that the dollar was trusted globally, making it a linchpin in both national and international finance.

The gold standard era came to an end in 1971, under President Nixon, who made the historic decision to cease gold convertibility, effectively transitioning the U.S. to a fiat currency system. This policy shift changed Fort Knox’s role, as gold was no longer used to back currency. Nonetheless, Fort Knox’s gold holdings continued to serve as a reserve asset, a sign of wealth and security, giving the government a financial safeguard in times of economic uncertainty.

According to 2021 statistics by US funds, the top 10 central banks with the largest gold reserves have remained mostly unchanged for the last few years. The United States holds the number one spot with over 8,000 tonnes of gold in its vaults – nearly as much as the next three countries combined – and accounting for 79% of total reserves.

The below figure shows the Top 10 countries with the highest gold reserves (US$ Million) in the second quarter of 2024.

Top 10 countries with highest gold reserves

Source: Central Banks, Federal Reserve Bank of St. Louis, International Monetary Fund, World Bank, World Gold Council

Security Measures and Infrastructure at Fort Knox

Military Presence and Physical Security: Fort Knox is protected by the U.S. Army, with soldiers and highly trained security personnel safeguarding the facility. There are intense security measures, including 24/7 surveillance, motion detectors, alarms, and physical barriers.
Advanced Technologies: Though specific details are classified, Fort Knox is believed to have some of the most advanced technology for security, possibly including biometric access controls, reinforced gates, and even underground passages. Its security has inspired legends and pop culture references (such as the James Bond film “Goldfinger”), adding to its mystique.
Limited Access: Only a few individuals have ever entered the main vault. In 1974, several members of Congress and journalists were invited to see the vaults and confirm the gold, which was an unusual event to dispel rumors about the gold’s existence.

The Contents of Fort Knox

Gold Reserves: Currently in 2024, Fort Knox holds the highest gold reserves at approximately 8,133.46 tonnes, which make up about 72.4 percent of the US total reserves. At today’s gold prices, this would be worth hundreds of billions of dollars.
Other Assets: While gold is the primary asset stored, the vault has also been used to store other valuable items in times of crisis, such as the U.S. Constitution, Declaration of Independence, and other historical documents during World War II for safekeeping.
Gold’s Role as a Reserve Asset: Even though the U.S. operates on a fiat currency system, the gold at Fort Knox acts as a safeguard, providing the country with a tangible asset that could be utilized or sold in extreme economic crises.

Economic and Financial Relevance Today

Despite the shift to a fiat currency system, Fort Knox’s gold reserves continue to provide financial security. Gold remains an important asset because it is believed to offer a hedge against inflation as gold’s value tends to increase during inflationary periods as it preserves purchasing power (see Erb and Harvey (2013 and 2024) for a discussion). Even in a modern economic context, where paper currency is not directly backed by gold, large gold reserves contribute to economic credibility on the global stage.

Gold’s role as a stable asset makes it valuable in times of economic volatility. During financial crises or market downturns, governments and investors alike often turn to gold as a safeguard. For the U.S., Fort Knox remains a testament to financial prudence and a guarantee of economic resilience.

Conclusion

In conclusion, Fort Knox stands as a symbol of American financial strength, security, and heritage. Though its role has evolved over the years, it continues to be a key reserve asset, both financially and symbolically. The facility’s rich history, robust security, and enduring legacy contribute to its iconic status as one of the most secure locations on earth. As an economic and cultural symbol, Fort Knox reflects the resilience and security of the U.S. economy, holding a significant place in both national and global finance.

Why should I be interested in this post?

Useful resources

Academic research

Erb, C.B., and C.R. Harvey (2013) The Golden Dilemma. Financial Analysts Journal 69 (4): 10–42.

Erb, C.B., and C.R. Harvey (2024) Is there still a Golden Dilemma. Working paper.

Data

World Gold Council Gold Reserves by Country

US Funds Top 10 Countries with Largest Gold Reserves

Other

Wikipedia Gold

WikipediaFortknox

About the author

The article was written in November 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Relation between gold price and interest rate

December 26, 2024November 11, 2024 by Nithisha CHALLA

Relation between gold price and interest rate

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) provides an overview of the inverse relationship between gold price and interest rate, and how various factors affect the relation between them.

Introduction

Gold and interest rates often exhibit an inverse relationship, meaning that as interest rates rise, gold prices tend to fall, and vice versa. Unlike stocks or bonds, gold doesn’t generate income (like dividends or interest) and is often used as a hedge against inflation or economic uncertainty. For instance, during the early 1980s, the U.S. Federal Reserve raised interest rates sharply to combat high inflation, leading to a short-term drop in gold prices. In 2022, the Fed’s aggressive rate hikes led to a decrease in gold’s appeal, which resulted in a relatively stable but pressured gold market. However, this relationship is not always straightforward and can be influenced by various factors.

The Inverse Relationship

This refers to the mostly known two factors that cause the inverse relationship between gold price and interest rate, namely opportunity costs and currency exchange rates.

Opportunity Cost

One of the primary reasons for this inverse correlation is the opportunity cost of holding gold. When interest rates rise, traditional investments like bonds and fixed deposits become more attractive due to higher yields. As a result, investors may shift their funds from gold to these higher-yielding assets, reducing demand for gold and consequently its price.

Currency Exchange Rates

Another factor is the impact of interest rates on currency exchange rates. Rising interest rates can strengthen a country’s currency, particularly the US Dollar. A stronger dollar can make gold, which is priced in US dollars, more expensive for international buyers, leading to decreased demand and lower prices.

Or is it a complex relationship?

It is important to note that the relationship between gold and interest rates is not always straightforward. Other factors, such as geopolitical tensions, inflation expectations, and market sentiment, can also influence gold prices. For instance, during periods of economic uncertainty or geopolitical turmoil, investors may seek refuge in gold, even if interest rates are rising.

To navigate this complex relationship, investors should consider the following:

Diversification: Gold can be a valuable addition to a diversified portfolio, providing a hedge against inflation and economic uncertainty.
Long-Term Perspective: A long-term investment horizon can help mitigate short-term price fluctuations and focus on the underlying value of gold as a store of value.
Market Timing: While it’s challenging to accurately predict interest rate movements and their impact on gold prices, investors can consider adjusting their gold holdings based on economic indicators and market sentiment.

The Historical Perspective

Historically, gold has been seen as a hedge against inflation. When inflation rises, the purchasing power of fiat currencies declines, making gold an attractive investment. However, rising interest rates can sometimes counteract this inflationary pressure.

The 1970s

A period of high inflation and economic uncertainty led to a surge in gold prices. However, as central banks tightened monetary policy and interest rates rose, gold prices began to decline.

The 2000s

The global financial crisis of 2008 and subsequent quantitative easing measures by central banks led to a significant increase in gold prices. However, as central banks began to normalize monetary policy in the late 2010s, gold prices declined.

Many people believe that the price of gold is inversely related to interest rates. However, it is only partially true. In fact, gold prices are driven not by nominal rates (which are not adjusted for inflation), but by real rates (which are nominal rates adjusted for inflation). Investors should remember that what really matters for gold are real interest rates, not the federal funds rate or nominal yields.

The chart below represents the relation between real interest rates (the 10-year inflation indexed Treasury rate is a proxy for long-term U.S. real interest rates) and the price of gold for the period 2003-2016. It shows significant negative correlation between real interest rates and the price of gold.

Relation between interest rates and gold price
correlation between interest rates and gold price from 2003-2016
Source: Gold price forecast

The Role of Central Bank Policies

Central banks play a crucial role in influencing interest rates and, consequently, gold prices. When central banks implement expansionary monetary policies, such as quantitative easing, they inject liquidity into the economy, which can lead to higher inflation and increased demand for gold. Conversely, when central banks tighten monetary policy by raising interest rates, they can reduce inflationary pressures and dampen gold demand.

The Impact of Geopolitical Risks

Geopolitical tensions, such as wars, political instability, and trade disputes, can also impact the relationship between gold and interest rates. During periods of heightened geopolitical risk, investors may flock to gold as a safe-haven asset, even if interest rates are rising.

Conclusion

In conclusion, understanding the relationship between gold and interest rates is crucial for investors seeking to optimize their portfolios. By considering the various factors that influence this relationship and adopting a long-term investment perspective, investors can effectively navigate the complexities of the gold market.

Why should I be interested in this post?

Useful resources

World Gold Council Gold is moving with rates

Bullion by post Gold price and interest rate relationship

CBS news Here’s how interest rates impact gold prices

APMEX When Do Central Banks Buy Gold & How Do They Affect Prices?

Other

Wikipedia Gold

About the author

The article was written in November 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

World Gold Council

December 26, 2024November 11, 2024 by Nithisha CHALLA

World Gold Council

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) provides an overview of World Gold Council (WGC), its key roles and impact in shaping the global gold market.

Introduction

The World Gold Council (WGC) is a market development organization founded in 1987 to promote the responsible use of gold. It’s a non-profit organization that works with governments, central banks, jewelers, investors, and other stakeholders to shape the gold market. Its main purpose is to stimulate and sustain demand for gold and provide leadership on global issues that affect the gold industry. The World Gold Council website states information such as, “For instance, in 2023, the demand for gold (excluding over-the-counter investments) fell by 5% compared to 2022, due to reduced central bank buying and fluctuations in ETF investments. Total annual gold supply increased by 3%, driven by a 1% rise in mine production and a 9% increase in recycling, spurred by high gold prices”.

Logo of the World Gold Council
Logo of the World Gold Council
Source: World Gold Council

Who owns the World Gold Council?

The World Gold Council has 32 members that are some of the world’s most forward-thinking gold mining companies. They are headquartered across the world and have mining operations in over 45 countries.

Key roles of the World Gold Council

The World Gold Council organization plays key roles in shaping the global gold market such as market development, market intelligence, advocacy, and policy.

Market Development

Consumer Demand: The WGC works to stimulate consumer demand for gold jewelry, particularly in emerging markets.

Industrial Demand: The WGC highlights the industrial applications of gold, such as its use in electronics and dentistry.

Investment Demand: The organization promotes gold as a long-term investment option, emphasizing its role as a store of value and a hedge against inflation.

According to the World Gold Council website, jewelry remains a significant driver, particularly in markets like China and India, while gold’s industrial uses include electronics and medical devices. In 2023, technology demand for gold dipped slightly, yet it remains a crucial component in the electronics sector.

Market Intelligence

Research and Analysis: The WGC conducts extensive research and analysis on the global gold market, providing insights into trends, supply and demand dynamics, and economic factors affecting gold prices.

Market Data: The organization publishes regular market reports, including the Gold Demand Trends report, which provides detailed information on global gold demand and supply.

WGC invests in research to explore new uses for gold, aiming to increase its demand in areas such as health, environmental technology, and sustainable jewelry.

Advocacy and Policy

Policy Engagement: The WGC engages with policymakers and regulators to promote responsible mining practices and sound gold market policies.

Industry Standards: The organization works to establish and maintain industry standards for gold, ensuring quality and transparency.

Impact of the World Gold Council

Promoting Gold Investment: The WGC has successfully promoted gold as an investment asset, leading to increased demand for gold ETFs and other investment products.

According to WGC website, adding between 4% and 15% in gold to hypothetical average portfolios over the past decade, depending on the composition and the region, would have increased risk-adjusted returns. Along with this information, they also explain every type of possible investment for gold such as Gold-backed ETFs, Gold futures, options and forwards, Internet Investment Gold, Gold savings plans, Investment bars and coins, and Gold certificates.

Supporting Responsible Mining: The organization has been a strong advocate for responsible mining practices, working to improve environmental and social standards in the gold mining industry.

On the WGC website, the Responsible Gold Mining Principles (RGMPs) was launched in 2019 as a framework that sets out clear expectations for consumers, investors, and the gold supply chain as to what constitutes responsible gold mining.

Key Statistics and Trends

Key statistics and trends are useful for finance students which help them understand the global gold market.

Global Gold Demand

Global gold demand has fluctuated over the years, influenced by factors such as economic growth, inflation, and geopolitical events.

The figure below shows the global gold demand in different sectors such as jewelry, technology, ETFs, and similar products dated in 2024 (Q2).

Global gold demand in different sectors in 2024

Source: World Gold Council

Central Bank Gold Reserves

Central banks around the world hold significant gold reserves, which can impact gold prices.

The figure below shows the gold reserves in different countries all over the world dated in 2024 (Q2).

Gold reserves in different countries in 2024

Source: World Gold Council

Gold Investment

Gold ETFs and other investment products have gained popularity in recent years, providing investors with exposure to gold without the need to physically own the metal.

Role of Gold in environmental, social and governance (ESG)

Responsible gold mining supports sustained socio-economic development in the countries and communities where gold is found. It creates well-paid jobs, valuable tax revenues for host governments, and generates sustained benefits for local communities. In recent years, we have seen increased focus from a growing number of consumers and investors on environmental, social, and governance (ESG) factors and the sustainability of our planet.

p>Gold also plays an important role in supporting technologies that enable our daily lives, as well as supporting the transition to a low-carbon economy. There is increasing evidence that including gold can make investment portfolios more robust and resilient in light of climate risks.

In 2019, the World Gold Council launched the Responsible Gold Mining Principles (RGMPs) – a framework that sets out clear expectations for consumers, investors, and the gold supply chain as to what constitutes responsible gold mining. The WGC has long believed that responsible gold mining supports sustained socio-economic development in countries and communities that host gold mining operations, through its contribution to jobs, tax revenue and investment in local communities.

Conclusion

The World Gold Council plays a crucial role in shaping the global gold market. By promoting gold as an investment, industrial, and consumer asset, the WGC contributes to the long-term health and sustainability of the gold industry.

Why should I be interested in this post?

Gold has been a key financial asset for centuries. It is often considered as a store of value, a hedge against inflation, and a safe-haven asset during economic crises. Understanding its investment options helps students grasp fundamental market dynamics and investor behavior, especially during periods of economic uncertainty.

Useful resources

World Gold Council

World gold council Members

World gold council Gold Demand Trends

World gold council Gold Reserves by Country

World gold council Environmental, Social and Governance (ESG)

Other

Wikipedia Gold

About the author

The article was written in November 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Gold and Central banks

December 30, 2024October 29, 2024 by Nithisha CHALLA

Gold and Central banks

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) This article presents a comprehensive understanding of how gold functions within the global economy and central banking strategies, reflecting historical significance, economic impacts, and future potential.

Introduction

Gold’s value as a reserve asset goes beyond its historical significance; today, central banks use it as a vital economic buffer and tool for financial stability. It has played a strategic role in the financial operations of central banks globally, serving as a hedge against inflation, a tool for reserve diversification, and a reliable store of value. This article explores the complex relationship between gold and central banks, highlighting historical significance, reserve strategies, economic impacts, and recent trends.

Historical Significance of Gold and Central banks

Using gold as a currency dates back thousands of years. For much of modern history, gold was the basis of the world’s monetary system, setting the standard for currency value.

Gold Standard

Until the mid-20th century, most major economies adhered to the gold standard, where each currency unit was pegged to a specific amount. Under the Bretton Woods Agreement (1944-1971), the U.S. dollar was directly convertible to gold, while other currencies were pegged to the dollar. This system solidified gold’s role in global monetary stability. However, the Bretton Woods system ended in 1971, transitioning central banks toward a floating exchange rate system.

Shift to Floating Exchange Rates

Although the gold standard was formally abandoned, gold continued to play a central role in monetary reserves for central banks worldwide, driven by its intrinsic value and historic stability in times of financial crisis.

The below figure shows the Top 10 countries with the highest gold reserves (US$ Million) in the second quarter of 2024.

Top 10 countries with highest gold reserves

Source: Central Banks, Federal Reserve Bank of St. Louis, International Monetary Fund, World Bank, World Gold Council

Why Central Banks Hold Gold

Gold is a key asset for central banks due to its stability, independence from other economic assets, and ability to hedge against inflation and currency risk.

Diversification of Foreign Reserves

According to the World Gold Council (WGC), central banks hold gold as part of a diversified portfolio that includes foreign currencies, government bonds, and other assets. Gold’s low correlation with other assets helps reduce portfolio risk.

Inflation Hedge and Safe-Haven Asset

Gold’s value often rises in response to inflationary pressures, making it a popular hedge against currency devaluation. For instance, during periods of heightened inflation in the U.S. and Europe, central banks increased their gold reserves to stabilize national reserves.

Global Stability During Crises

Central banks increase gold holdings during geopolitical tensions and economic downturns. For instance, central banks acquired approximately 1,136 metric tons of gold in 2022 alone, marking the largest annual net gold purchases since 1967 (World Gold Council, 2023).

Leading Central Banks and Their Gold Holdings

Many countries prioritize gold in their reserve strategies, with the largest gold holdings concentrated among a few central banks. These top holders collectively hold around 60% of global central bank gold reserves, underscoring gold’s importance among the world’s most prominent economies.

United States: The U.S. has the largest gold reserves, totaling 8,133.5 metric tons as of 2023 (World Gold Council). The U.S. Federal Reserve’s substantial gold reserves bolster the dollar’s stability, lending it a “safe-haven” currency status.
Germany: The Deutsche Bundesbank holds around 3,355 metric tons of gold, focusing on economic stability and currency confidence.
International Reserves: The International Monetary Fund (IMF) holds around 2,814 metric tons of gold, which it maintains as a “safety net” for international economic stability, intervening to support currency values in times of economic crisis.

Emerging Markets and Rising Demand for Gold Reserves

In recent years, emerging economies have increasingly turned to gold to reinforce their economic stability.

China: As stated by the People’s Bank of China (PBoC), its gold reserves have rapidly expanded to approximately 2,010 metric tons as of 2023, part of China’s strategy to reduce dependence on the U.S. dollar and enhance the yuan’s position as a global currency.
Russia: The Central Bank of Russia actively grew its gold reserves to over 2,298 metric tons by 2022 (World Gold Council), emphasizing the importance of gold amid geopolitical tensions and economic sanctions.
India: The Reserve Bank of India (RBI) also expanded its gold holdings, reaching approximately 795 tons in 2023. India uses gold as a hedge against currency volatility, particularly during inflationary cycles, aligning with its long-standing cultural and economic relationship with gold (World Gold Council, 2023).

Economic Impacts of Central Bank Gold Purchases

The actions of central banks significantly influence global gold markets, particularly in times of economic instability.

Price Stability and Market Demand: Central banks collectively account for about 10-20% of annual global gold demand, influencing gold prices and market stability. According to the World Gold Council, central bank purchases accounted for a record-breaking 1,136 metric tons in 2022, pushing global gold prices to multi-year highs.

Strengthening Currency Value: For many emerging markets, holding gold as a reserve asset bolsters currency credibility. Gold reserves help stabilize a nation’s economy by maintaining foreign reserves and serving as a collateralized asset during debt restructuring or financial assistance negotiations.

Inflation Control: Countries with high inflation rates, such as Turkey, have increased their gold reserves to combat domestic inflationary pressures. By 2023, Turkey’s central bank held around 550 tons of gold, partially insulating its economy from severe currency depreciation.

The Future of Gold in Central Bank Reserves

Shift from the Dollar-Centric System

Some central banks, especially in emerging markets, aim to diversify away from the dollar and other Western assets, driven by geopolitical concerns. Gold provides an attractive alternative due to its universal value and liquidity.

Increased Demand for Sustainable Financial Assets

Gold mining and sustainability are increasingly critical issues for central banks. Many central banks, led by European nations, have begun to prioritize sustainably sourced gold for their reserves, aligning with ESG (Environmental, Social, and Governance) commitments.

Potential for Digital Gold Reserves

As digital currencies evolve, some central banks are exploring digital gold or gold-backed digital currencies as potential financial assets. This shift could create new financial instruments, making gold an even more versatile and accessible asset class.

Conclusion

Gold remains a critical element of central bank reserves, valued for its stability, economic security, and inflation-hedging properties. With global gold demand on the rise, central banks are likely to continue viewing gold as an essential reserve asset. As emerging economies strengthen their reserves and geopolitical risks persist, gold’s importance within central banking strategies will only deepen, securing its status as a pillar of global economic stability.

Why should I be interested in this post?

Gold has been a key financial asset for centuries, acting as a store of value, a hedge against inflation, and a safe-haven asset during economic crises. With both developed and emerging economies increasing their gold reserves, understanding its role as a financial cornerstone for central banks helps students grasp fundamental market dynamics and investor behavior, especially during periods of economic uncertainty

Useful resources

Academic research

Erb, C.B., and C.R. Harvey (2013) The Golden Dilemma. Financial Analysts Journal 69 (4): 10–42.

Erb, C.B., and C.R. Harvey (2024) Is there still a Golden Dilemma. Working paper.

Bogle, John C. (2007). The Little Book of Common Sense Investing. John Wiley & Sons.

Business

World Gold Council (WGC) Gold Demand Trends Full Year 2023

Federal Reserve System What central bank does?

Mining.com (August 7, 2024) China’s PBOC keeps gold buying on hold as prices hit record

International Monetary Fund (IMF) The role of gold

Other

Wikipedia Gold

About the author

The article was written in October 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Gold in India

December 30, 2024October 29, 2024 by Nithisha CHALLA

Gold in India

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) explores gold’s multifaceted significance in India, examining its historical roots, economic impact, cultural value, and future potential.

Introduction

India’s association with gold is ancient, with the metal symbolizing prosperity, purity, and wealth. For centuries, gold has been valued as an adornment and a symbol of security and status, affecting both urban and rural economies across the country. With India and China together accounting for over 50 percent of the world’s gold demand, World Gold Council dated October 2024, understanding its importance goes beyond investment; it’s a story of tradition, economic significance, and national pride. As one of the world’s top gold importers, India’s reliance on imported gold introduces opportunities and challenges for its economy.

Historical Significance of Gold in India

This refers to the ancient history, religious and cultural ties, historical trade, and treasure of gold.

Ancient History

India’s relationship with gold dates back to the Indus Valley Civilization (circa 3300–1300 BC), where archeological finds have unearthed gold jewelry, indicating the metal’s early status as a precious material. India was a central hub in ancient trade, exchanging spices, textiles, and precious metals. Gold was both imported and exported, flowing from regions like Persia and Egypt, as traders recognized India as a rich market. This trade bolstered India’s gold reserves and established the metal as a key part of economic and social transactions.

Below figure shows a photograph of a group of goldsmiths (Sonars) seated around a low work table in Bombay, taken by Shivashanker Narayen in c. 1873, from the Archaeological Survey of India Collections.

Photograph of a group of goldsmiths in 1873

Source: shoplune

Religious and Cultural Ties

Gold holds divine significance in Hindu mythology. According to legend, the Hindu goddess Lakshmi, the deity of wealth and prosperity, is adorned in gold, symbolizing abundance. This association with divinity makes gold not only valuable but auspicious, embodying good fortune and blessings. Gold has sacred connotations, used extensively in temples, idols, and as offerings to deities. Temples like Tirupati and Padmanabhaswamy house enormous gold reserves, signifying the metal’s spiritual importance.

Below figure shows a picture of the Hindu god Sri Padmanabhaswamy reclining on the serpent Anantha which is one of the golden treasures of India

Sri Padmanabhaswamy reclining on the serpent Anantha

Source: Forbes

Cultural and Social Importance of Gold

In many regions, particularly in rural India, gold represents financial stability. It is often considered a “safe asset” that can be sold or pledged in times of need. It is a staple in Indian weddings and festivals like Diwali and Akshaya Tritiya, where it symbolizes luck and prosperity. Families across income levels save and invest in gold, especially for daughters’ weddings.

According to the World Gold Council (WGC), Indian households hold approximately 25,000 metric tons of gold, accounting for nearly 40% of global private gold holdings in the world. Gifting gold remains a widespread tradition in India, passed down through generations as family heirlooms and regarded as wealth that grows with time. WGC expects the average demand to reach around 850 to 950 tonnes per annum by 2020 at an annual growth rate of 35 percent with two-thirds of its market coming from rural markets, that is households.

Because of the emotional value associated with household jewelry, people rarely sell their gold to meet their immediate financial needs, as an alternative people pledge their gold ornaments as short-term loans, such loans are called organized gold loan markets.

Below figure shows, an organized gold loan market projection(as mentioned above), INR 3101 billion by 2020 at a three-year CAGR of 13.17 percent

Gold loan market projection

Source: KPMG

Economic Impact of Gold in India

India’s gold consumption significantly affects its economy, with implications for trade, financial stability, and national savings.

Gold as a Financial Asset, Trade Balance and Foreign Exchange

Inflation Hedge: Gold is traditionally seen as a hedge against inflation, protecting wealth during economic downturns. Its ability to retain value attracts investors during periods of high inflation or currency devaluation. For a rigorous analysis of this question, you can read the academic articles by Erb and Harvey (2013 and 2024) that challenge the traditional view that gold is a hedge against inflation.

Risk Diversification: Investors across India use gold to diversify their portfolios, as gold prices often perform inversely to equity markets. This reduces risk, providing a balance during times of market volatility.

High Import Dependency: India imports over 80% of its gold, making gold purchases a significant contributor to the trade deficit. In 2021, gold imports cost the Indian economy around $55 billion, placing substantial pressure on the country’s current account.

Import Duty Adjustments: To counter rising imports, the government levies an import duty on gold (currently, in 2024, around 6%), aiming to curb demand and balance the trade deficit. However, this often leads to price-sensitive demand fluctuations.

During the July 2024 Union Budget, Finance Minister Nirmala Sitharaman announced a drop in customs duties on the import of gold, silver and platinum. Due to this, the current duties drop from 15% to 6%, a significant cut of 9% in import duty on gold.

Below figure shows, import customs duty on gold, from 15 percent in July 2022, to 6 percent in July 2024.

Gold customs import duty

Source: World Gold Council (WGC)

Contribution to the Indian Economy Through Employment and Taxes

Employment in Jewelry and Trade: India’s gold industry employs millions, from miners and artisans to retail jewelers. Major gold hubs like Mumbai and Jaipur have vibrant trade networks, supporting local economies and artisan crafts. The Federation of Indian Chambers of Commerce & Industry (FICCI) and the World Gold Council (WGC) (September 2022), report that the gold industry contributes over $30 billion to India’s GDP annually, with the jewelry sector alone employing around 4.6 million people, spanning from goldsmiths to retail traders and related support sectors.

Tax Revenue: The gold industry is a source of government revenue through import duties, GST on gold purchases, and income tax from jewelers and traders.

Shift Toward Formal Investments: Younger and urban investors are increasingly investing in structured products like Sovereign Gold Bonds and Gold ETFs, signaling a gradual shift from physical gold to formal investment avenues.

Gold’s Impact on Financial Policies and Regulations

Policy on Import and Consumption: India’s government frequently adjusts gold import policies to control demand and influence economic stability. High demand often prompts higher import duties or restrictions to limit the impact on foreign exchange.

Regulation of Financial Gold Products: To support formal financial growth, the government offers options like Sovereign Gold Bonds, which promote investment without affecting the trade balance. These bonds allow investors to gain from gold’s price appreciation without physical ownership.

Anti-Smuggling Efforts: Due to high import duties, gold smuggling has become an issue. Regulatory efforts focus on reducing smuggling to ensure that the government earns tax revenue from gold imports.

Gold’s Role in Modern India

Gold in Indian Independence

During India’s independence movement, 1857-1947, leaders urged citizens to donate gold for the national cause. This movement emphasized gold’s role as a unifying asset for Indians across social classes.

Continuing Cultural Significance in Post-Independence India

The importance of gold has persisted in modern India, with a large part of household wealth still held in physical gold. Even as digital and financial assets grow, gold remains a stable and respected form of wealth storage.

Evolution with Government Policies

Post-independence, gold import policies, and the introduction of schemes like the Gold Monetization Scheme and Sovereign Gold Bonds have attempted to modernize India’s relationship with gold, encouraging citizens to treat it as an investment rather than simply a family heirloom.

Gold Markets and Demand in India

Based on the data given by Statista, the demand for gold across India was about 747.5 metric tons in 2023. This represented a decrease of three percent in comparison to the previous year, when the gold demand was 774 metric tons.

Below figure shows fluctuations in the annual demand volume of gold across India from 2010 to 2023.

Annual gold demand volume from 2010 to 2013

Source: Statista

Regional Gold Hubs: Cities like Mumbai, Kolkata, and Chennai have bustling gold markets, with jewelry demand highest in Tamil Nadu, Kerala, and Maharashtra.
Jewelry vs. Investment Demand: While traditional gold jewelry demand remains high, investment in gold bars, coins, and newer avenues like digital gold is rising.
Gold Price Sensitivity: Indian consumers are sensitive to gold price fluctuations, with demand typically increasing during periods of price stability or decline.

Conclusion

Gold remains the top choice for many investors for portfolio diversification or protection against economic instability. This precious metal has held its value over centuries. While market prices fluctuate, many still choose to buy gold to secure their financial future.

Why should I be interested in this post?

Useful resources

Academic research

Erb, C.B., and C.R. Harvey (2013) The Golden Dilemma. Financial Analysts Journal 69 (4): 10–42.

Erb, C.B., and C.R. Harvey (2024) Is there still a Golden Dilemma. Working paper.

Bogle, John C. (2007). The Little Book of Common Sense Investing. John Wiley & Sons.

Business

World Gold Council (WGC) India’s gold jewellery market structure

World Gold Council (WGC) Indian gold import duties reduced to the lowest level in over a decade

KPMG (2017) India’s gold loan market: Is it glitter fading?

Shoplune The Story Of India And Gold Through The Ages

Statista Annual demand volume of gold across India from 2010 to 2023

Other

Wikipedia Gold

About the author

The article was written in October 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Gig Economy

December 30, 2024October 19, 2024 by Anant JAIN

Gig Economy

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about Gig Economy.

Introduction

The gig economy is defined by a setup where businesses offer freelancers and independent contractors temporary, flexible work in place of typical, full-time employees. In a gig economy, businesses or employers can increase the cost savings on hiring, benefits and payroll costs while a person working in the gig economy benefits from the possibility to earn income from several different sources and complete projects and tasks on a flexible schedule.

In the general setting of a gig economy, freelancers and independent contractors typically find their own jobs by connecting with businesses and clients using an internet platform or smartphone app. With the help of businesses like Airbnb, TaskRabbit, Uber, Lyft, PostMates, DoorDash, and Instacart, the gig economy has grown significantly during the past ten years. In fact, a 2020 report from the ADP Research Institute indicated that from 2010 to 2019, gig employment increased by 15% in the United States. According to a survey by MasterCard and Kaiser Associates, the gross volume of transactions in the gig economy is expected to reach $455 billion by 2023.

The possible benefits of the gig economy may not be reaped by people who don’t use modern technology and services like Internet. Additionally, a person’s geographical location also impacts the possibility of being a part of the gig economy since most cities have more advanced technology and hence having the deepest roots in the gig economy.

Although the gig economy spans a wide range of sectors, the basic idea is the same: gig workers will take on tiny, ad hoc tasks for payment. These tasks can involve creating a website, making food deliveries, walking dogs, or picking up a family and taking them to the airport. The gig worker moves on to the following task after the job is finished.

Although it is typical for businesses to keep working with the same gig worker, neither the business nor the worker are required to make a long-term commitment.

Workers that are interested in engaging in the gig economy often need to join up by submitting an application to their preferred platforms. Once accepted, individuals can select which projects or work shifts to finish. For instance, in order to keep her nights and weekends open, a woman who works for DoorDash can choose to work for two to three hours when her kids are in school. A virtual assistant, on the other hand, could decide to work a standard 9 to 5 job for a business to finish a particular assignment.

While people may question the worth of a gig economy, it is worthwhile to those who operate in the gig economy. According to studies, 79% of people who work in the gig economy are happier than they were when they had regular employment.

Pros Of The Gig Economy

Flexibility

With gig employment, you are effectively your own employer and may decide how, where, and for how long you work. In certain cases, you can even select your clientele and pricing.

Independence

Since gig workers are not directly supervised and are not required to work in an office, they are allowed to do tasks independently, according to their preferences, and on their own schedule.

Scope Of work

The gig economy offers the chance to take on a variety of jobs and projects that may keep you on your toes and exercise your creative and problem-solving abilities in the process, as opposed to working in one 9–5 job for one boss.

Cost Efficient For Businesses

Freelancers can be a less expensive option for firms than hiring full-time workers. They also provide owners the chance to locate new talent and set different charges for different skill levels.

Cons Of The Gig Economy

Income Instability

Having a flexible work schedule has the consequence of bringing with it an unstable source of income. The quantity of labour available determines your revenue from gigs, and you only get paid when you do jobs.

Lack Of Benefits

Gig workers are often ineligible for health insurance, retirement programs, and workers’ compensation or disability insurance if they are injured on the job.

Stress And Burnout

Having a range of jobs might be monetarily advantageous, but it can also cause stress and fatigue. For a delivery driver, for instance, doing numerous jobs might drain your energy, change your way of life, and even damage your car.

Taxes And Expenses

Independent contractors who get payment for gig work may be required to make quarterly anticipated tax payments in addition to being responsible for paying self-employment taxes. By making timely and enough tax payments, you can avoid a fine. Additionally, gig workers are in charge of getting and keeping their work-related gear and supplies, such as smartphones, phone plans, laptops, and automobiles.

Uber’s Business Model: Example For One Of The Leading Company In The Gig Economy

Business Model

Uber operates on a platform-based business model that connects drivers (independent contractors) with riders through a mobile app. The key components of its business model:

Ride-Hailing Services: Uber’s core service allows users to request rides via the app, connecting them with nearby drivers. The app calculates fares based on distance, demand, and time.
Driver Independence: Drivers are classified as independent contractors, not employees, which means they have the flexibility to choose when and how much they work. Uber retains a percentage of each fare as a commission, typically around 20-30%.
Dynamic Pricing: Uber employs a dynamic pricing model (also known as surge pricing) that adjusts fares based on real-time demand and supply. This model incentivizes drivers to work during peak times when prices increase.
Expansion of Services: Beyond ride-hailing, Uber has expanded into food delivery (Uber Eats), freight transport (Uber Freight), and even micro-mobility options like scooters and bikes, diversifying its revenue streams.
Technology and Data Utilization: The company leverages data analytics and algorithms to optimize routes, enhance user experience, and manage driver-partner supply.

Uber’s Green Initiatives

Uber has made commitments towards sustainability and aims to position itself as a green company through several initiatives:

Electric Vehicle (EV) Transition: Uber has pledged to transition to an all-electric fleet by 2030 in major cities and by 2040 globally. This involves encouraging drivers to switch to electric vehicles and providing incentives for doing so.
Partnerships: The company collaborates with manufacturers and governments to promote the adoption of EVs and invest in charging infrastructure.
Carbon Offset Programs: Uber offers options for riders to contribute to carbon offset projects, aiming to neutralize the emissions generated from their rides.

Pollution and Environmental Concerns

Despite these initiatives, Uber faces critique regarding its environmental impact due to multiple factors:

Independent Contractors: Since drivers are independent contractors, Uber does not directly control the vehicles they use or their maintenance. Many drivers still use older, less fuel-efficient vehicles, contributing to greenhouse gas emissions.
Increased Vehicle Miles Travelled (VMT): Research indicates that ride-hailing services can lead to increased vehicle miles travelled, as rides may include more deadheading (drivers traveling without passengers) and inefficient routing. This can negate some of the benefits of switching to electric vehicles.
Urban Congestion: The rise of ride-hailing has been associated with increased traffic congestion in cities, leading to more emissions and pollution. This situation raises concerns about the overall sustainability of the business model.

Conclusion

Despite its cons, both employees and employers may gain greatly from the gig economy. A employer has access to a diverse pool of talent without out any commitment to permanently hire the person or any repercussions to fire them if their skill set does not match with the required level. An employer may also utilise gig economy during phases when it is difficult to hire full-time employees. Additionally, an employer does not usually incur any costs to cover benefits provided to employees like health insurance, etc. On the contrary, the gig economy provides employees the freedom and ability to undertake multiple jobs, the freedom to choose the place to work depending on the employment and flexibility in their work timings.

Useful Resources

HBS – The Gig Economy Is Here to Stay

McKinsey – Gig Economy: The Future of Work

Business Cases

Uber’s Commitment to Sustainability

Understanding the Uber Business Model

About The Author

The article was written in October 2024 by Anant JAIN ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

The Ongoing Hyperinflation In Turkey And Its Ripple Effects On European Union

January 10, 2025October 19, 2024 by Anant JAIN

The Ongoing Hyperinflation In Turkey And Its Ripple Effects On European Union

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about the ongoing hyperinflation in Turkey and its ripple effects on European markets.

Introduction

Turkey is facing one of the most severe inflation crises in its modern since 2019. Hyperinflation, marked by an uncontrollable surge in prices, has deeply impacted the Turkish economy and is starting to affect European markets as well. This article delves into the causes behind Turkey’s hyperinflation, its consequences on the Turkish economy, and the broader implications for Europe.

Figure 1. Inflation In Turkey (1960-2024)
Hyperinflation in Turkey
Source: World Bank

You can download the Excel file for the data used for the figure above.

Causes Of Hyperinflation In Turkey

Several factors have contributed to Turkey’s current hyperinflation crisis: monetary policy and Central Bank challenges, depreciation of the Turkish Lira, and political and external pressures.

Monetary Policy and Central Bank Challenges

The Turkish administration, led by President Recep Tayyip Erdoğan, has adopted unconventional monetary policies, including lowering interest rates despite high inflation. Erdoğan’s view that high interest rates lead to inflation contradicts established economic theory, leading to frequent rate cuts.
The Central Bank of Turkey has faced issues with its independence, with frequent changes in leadership and government interference undermining the effectiveness of its monetary policy.

Depreciation Of The Turkish Lira

The Turkish lira has seen a sharp decline in value against major currencies like the U.S. dollar and the euro. This currency depreciation has increased the cost of imports, which drives up prices domestically. Given Turkey’s reliance on imported goods, including energy and raw materials, the weakening lira has significantly contributed to inflation.

Political & External Pressures

Internal political instability and external geopolitical tensions have intensified the economic situation.

Political events, including the 2018 presidential elections and subsequent local elections in 2019, have created uncertainty in the markets. The government’s actions, such as arrests of opposition figures and crackdowns on dissent, have raised concerns about the rule of law and investor confidence.
The COVID-19 pandemic and the subsequent recovery have affected global supply chains and commodity prices, putting additional pressure on inflation in Turkey. Rising oil prices, in particular, have hurt Turkey due to its dependence on energy imports.

Global issues, such as rising energy costs and disruptions in supply chains, have also worsened Turkey’s inflation crisis.

Effects On Turkey’s Economy

Hyperinflation has had severe consequences for Turkey: Rising Costs and Living Standards, Devaluation Of Savings & Income, and Challenges For Businesses and Investment.

Rising Costs and Living Standards

The prices of everyday goods and services have soared, placing a heavy burden on Turkish citizens. Essential items like food, fuel, and housing have become increasingly expensive, leading to a marked decline in the quality of life for many people.

Official inflation rates are high, but real rates may be even higher. This has resulted in widespread economic difficulty, with many Turks struggling to afford basic necessities.

Devaluation Of Savings & Income

As the lira depreciates, the value of savings held in lira has diminished. Those on fixed incomes or holding substantial savings in lira are experiencing a severe reduction in their purchasing power.
Wage increases have not matched inflation rates, resulting in a decrease in real wages. This reduction in income has led to lower consumer spending, further hurting economic growth.

Challenges For Businesses and Investment

The hyperinflation crisis has created a turbulent environment for businesses. Rising costs and reduced consumer spending are making it challenging for companies to maintain profitability.
Foreign investors are hesitant to engage with the Turkish market due to concerns about the unstable lira and the government’s economic policies.

Consequences For European Markets

The economic turmoil in Turkey is beginning to influence European markets in several ways: Trade and Supply Chain Interruptions, Financial Market Volatility, and Migration & Social Strain.

Trade and Supply Chain Interruptions

Impact: Increased costs and disruptions in supply chains are causing delays in production and raising prices for goods in Europe. European companies may either absorb these costs or pass them on to consumers, potentially leading to lower sales and profits.
Example: European car manufacturers like Volkswagen and Renault are experiencing increased costs and delays because of issues with their Turkish suppliers. For instance, a Turkish automotive parts supplier reported a 30% rise in costs due to the lira’s devaluation, affecting European manufacturers reliant on these components.

Financial Market Volatility

Impact: Turkey’s financial instability has led to increased volatility in European financial markets. Concerns about potential defaults on Turkish debt may result in tighter credit conditions and impact the profitability of European banks.
Example: Spanish bank BBVA, which holds a significant investment in Turkey through Garanti BBVA, has been affected by the financial instability in Turkey. The lira’s devaluation and inflation have led to fluctuations in BBVA’s stock price and higher borrowing costs.

Effects On The Euro & Economic Stability

Impact: The euro’s depreciation in response to Turkey’s crisis could lead to higher import costs for European countries, particularly those that rely on non-Eurozone imports. This might worsen inflationary pressures in Europe and complicate the European Central Bank’s efforts to manage economic growth.
Example: In late 2022, the euro saw a noticeable decline in value against major currencies, partly due to concerns about the effects of Turkey’s economic situation. As the Turkish lira weakened, European investors and businesses faced greater uncertainty, affecting market sentiment and currency exchange rates.

Migration & Social Strain

Impact: Increased migration from Turkey could put additional pressure on European social services, such as housing, healthcare, and education. This may heighten political tensions within the EU as member states address how to manage and support the influx of migrants.
Example: Turkey has been a significant source of migration to Europe, with many people seeking refuge from economic and political instability. The worsening situation in Turkey could lead to more migration to countries like Greece and Italy, which are already dealing with substantial migration challenges.

Conclusion

The hyperinflation crisis in Turkey is a rapidly evolving issue with wide-ranging consequences. While the primary burden falls on the Turkish economy, the repercussions are starting to be felt across Europe. Trade disruptions, financial instability, and potential migration issues are among the challenges that European markets may face due to Turkey’s economic troubles.

The situation underscores the interconnected nature of global economies and the need for Europe to monitor and prepare for potential economic fallout. European policymakers and businesses must stay alert and adaptable in response to the ongoing developments in Turkey.

Addressing Turkey’s hyperinflation will require substantial economic reforms, including restoring central bank independence, stabilizing the currency, and regaining investor confidence. Until these issues are resolved, the economic and social impacts of Turkey’s crisis will continue to challenge both Turkey and Europe.

Useful Resources

Data

World Bank Inflation, consumer prices

Economic Analysis

World Bank Turkey Economic Monitor

Financial Times Turkey’s Economic Crisis

BBC News Turkey’s Inflation Crisis

European Central Bank Economic Bulletin

Council on Foreign Relations Turkey’s Economic Struggles

About The Author

The article was written in October 2024 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Understanding Debt Ratio & Its Impact On Company Valuation

December 30, 2024October 19, 2024 by Anant JAIN

Understanding Debt Ratio & Its Impact On Company Valuation

In this article, Anant JAIN (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) explain the debt ratio and its importance in firm valuation.

Introduction

In financial analysis, calculating and even evaluating a company’s debt ratio is essential for assessing its financial stability and valuation. The debt ratio provides insights into how a company finances its assets—through debt or equity—and reveals critical information about its risk profile. This article explores the debt ratio in detail, including real-life examples, and discusses its implications for company valuation.

Defining Debt Ratio

The debt ratio is a financial metric that represents the proportion of a company’s assets that are financed by debt.

Title

Total Debt: This includes all short-term and long-term debt/liabilities. Short-term debt includes financial commitments due within one year, such as accounts payable, commercial paper and short-term loans. Long-term debt consists of liabilities such as bank loans and bonds with repayment periods extending beyond one year.
Total Assets: This includes all resources owned by the company, such as cash, inventory, property, and equipment.

Sometimes, the debt will include financial debt only (accounts payable being include to the working capital).

Understanding Debt Ratio Values

High Debt Ratio

A high debt ratio indicates that a large portion of a company’s assets is financed through debt. For instance, a debt ratio of 0.70 means that 70% of the company’s assets are debt-financed. High leverage can heighten financial risk, as the probability to repay the capital of the loan and interest is higher, and then the probability of bankruptcy is higher. During economic downturns or revenue drops, companies with high debt ratios might face challenges in maintaining financial stability and avoiding default.

Low Debt Ratio

A low debt ratio suggests that the company relies more on equity financing. For instance, debt ratio of 0.3 implies that 30% of the assets are financed by debt. While this indicates lower financial risk and greater stability, it may also suggest that the company is conservative in leveraging debt (to minimize the cost of bankruptcy).

Implications for Company Valuation

Risk Assessment

The debt ratio can be a valuable metric to assess a company’s risk level. High leverage increases financial risk, which can affect the company’s stock price and valuation. Investors often seek higher returns to compensate for higher risk, potentially leading to a lower stock price if the company is perceived as too risky. This issue has been extensively studied in the academic literature (see the seminal works of Modigliani and Miller (1958 and 1963).

Cost of Capital

WACC (weighted average cost of capital) is the average rate that a business pays to finance its assets. The debt ratio affects a company’s WACC. A higher proportion of debt can reduce the WACC due to the tax benefits associated with interest payments. Lower WACC can increase the company’s valuation by increasing the present value of future cash flows. However, excessive debt might raise the cost of equity as investors demand higher returns to offset increased risk, which could diminish the benefits of a lower WACC.

Figure 2. Calculation Of WACC.
Title

Creditworthiness and Borrowing Capacity

The debt ratio impacts a company’s credit rating and borrowing ability. High debt levels can lead to lower credit ratings, resulting in higher borrowing costs and reduced financial flexibility. This can negatively affect the company’s valuation due to increased financial costs and operational constraints.

Growth Potential

Companies with manageable debt levels may be better positioned to pursue growth opportunities. Effective use of debt can enable investments in expansion, technology, and acquisitions. A moderate debt ratio can suggest that the company is leveraging debt effectively to drive growth without overextending itself. This positive outlook can boost investor confidence and increase the company’s valuation.

Industry Context

Debt ratios should be assessed within the context of industry standards. Different industries have varying norms for acceptable debt levels based on capital requirements, revenue stability, and growth potential. For example:

Capital-Intensive Industries: Sectors such as utilities, telecommunications, and manufacturing often have higher debt ratios due to substantial capital needs for infrastructure and equipment. In these industries, higher leverage is often necessary and accepted.
Service and Technology Industries: Companies in service and technology sectors typically have lower capital requirements and may operate with lower debt ratios. High debt levels in these industries could signal potential financial risk or overextension.

Real-Life Examples

Tesla, Inc.

Tesla, renowned for its electric vehicles and energy products, has historically maintained a high debt ratio. For example, Tesla’s debt ratio has been around 0.70 in late 2010s, indicating that 70% of its assets are financed by debt. This high leverage reflects Tesla’s aggressive growth strategy and significant investments in technology and infrastructure. Despite the elevated debt ratio, Tesla’s robust revenue growth and innovative position have led to a high valuation, illustrating that high leverage can be manageable if the company demonstrates strong financial performance and growth potential.

Figure 3. Tesla’s Debt Ratio From 2015 – 2023.
Title

Apple Inc.

Apple, a leading technology company, has a lower debt ratio compared to Tesla. As of its latest financial disclosures in 2024, Apple’s debt ratio stands at almost 0.40. This lower ratio indicates that Apple relies more on equity financing and has a solid balance sheet. Apple’s cautious approach to debt and substantial cash reserves contribute to its high valuation and perceived financial stability. Investors value Apple’s lower risk profile and consistent cash flow generation, which supports a high valuation.

Figure 4. Apple’s Debt Ratio From 2000 – 2024.
Title

General Electric (GE)

General Electric, a large multinational conglomerate, has experienced varying debt ratios over time. Historically, GE has had a high debt ratio, such as in 2000 when it was approximately 0.8. As of 2024, it stands at 0.6. This high leverage was partly due to significant capital investments and acquisitions. During its restructuring phase, the high debt ratio contributed to financial difficulties and a lower stock price (cost due to the restructuring). This example underscores how excessive leverage can impact a company’s valuation and financial health.

Figure 5. General Electric’s Debt Ratio From 2000 – 2024.
Title

Conclusion

The debt ratio is a vital metric for understanding a company’s financial structure and risk profile. Its implications for company valuation are substantial, affecting perceptions of risk, cost of capital, creditworthiness, and growth potential. By analysing the debt ratio alongside other financial indicators and industry benchmarks, investors and analysts can develop a comprehensive understanding of a company’s financial health and make more informed valuation decisions.

Real-world examples, such as Tesla’s high debt ratio versus Apple’s conservative approach, illustrate how different debt levels can influence a company’s valuation and investor perception. A thorough analysis of the debt ratio enables stakeholders to assess a company’s stability, growth prospects, and financial strategy, leading to more accurate and insightful evaluations.

Useful Resources

Academic references

Modigliani, F., M.H. Miller (1958) “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review, 48(3), 261-297.

Modigliani, F., M. H. Miller (1963) “Corporate Income Taxes and the Cost of Capital: A Correction.” American Economic Review, 53(3), 433-443.

Business resources

Tesla’s Financial Reports

Analysis on Tesla’s Debt

Apple’s Financial Reports

Analysis on Apple’s Debt

GE’s Financial Reports

Analysis on GE’s Debt

Deloitte – Industry Insights

Bloomberg – Company Profiles

About The Author

The article was written in October 2024 by Anant JAIN (ESSEC Business School, Master in Management, 2019-2022).

Political Risk: An Example in France in 2024

The context

The Cost of French Debt Rises

The Cost of French Debt Rises

France Fiscal Outlook

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

My Internship Experience at Safety Carb

About Safety Carb

My internship at Safety Carb

My missions

Required skills and knowledge

What I learned during my internship at Safety Carb

Financial concepts related my internship

Business Plan Development

Cost-Benefit Analysis

Cash Flow Management

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

My Internship Experience as a Brand Strategy Assistant at Accor

About Accor

My internship

My missions

Required skills and knowledge

What I learned

Financial concepts related my internship

Return on Investment (ROI)

Key Performance Indicators (KPIs)

Budget Management

Why should I be interested in this post?

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Useful resources

About the author

Factiva

Introduction

The History of Factiva

Key Features

Extensive Content Coverage

Search and Filter Options

Real-Time News

Data Analytics and Visualization

Company Profiles and Industry Reports

Applications in Finance and Business

Advantages and Limitations of Factiva

Advantages of Factiva

Challenges and Limitations

Why Factiva Matters in 2024

Conclusion

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Treasury Bonds: The Backbone of U.S. Government Financing

Introduction

What Are Treasury Bonds and How Do They Work?

The Role of Treasury Bonds in Monetary Policy

Treasury Bonds as a Global Benchmark

Why Should I Be Interested in This Post?

Related Posts on the SimTrade Blog

Useful Resources

About the Author

OAT: France’s Answer to Sovereign Bonds

Introduction

What Are OATs and How Do They Work?

The Role of OATs in Monetary Policy

OATs as a Global Benchmark

Why Should I Be Interested in This Post?

Related Posts on the SimTrade Blog

Useful Resources

About the Author

Bridging Technology and Finance: Insights from a Marketing Internship in Public Bidding

About the company

My internship

My missions

Required skills and knowledge

What I learned