The school year has just begun, but we at Finance Society have really

gotten the ball rolling early on! Over the past few weeks weve received
guests from Credit Suisse and provided students with workshops that
promoted an education in finance, exhibited how to build resumes, and
prepared them for interviews. Today were happy to welcome
representatives from Barclays Investment Banking & Global Markets who
will be offering their insights about current industry trends.
Consistent with the last few semesters, we have planned events in
partnership with some top firms on the street that will be coming in to
discuss various topics from investment banking and sales & trading to asset
management and equity research. We want to stress to all of those involved
with FS that our goal is to educate the NYU Stern community about
finance through both professional and academic lenses.
We want to give a big shout out to our Executive Committee that has been
posting interesting articles on our blog, writing op-eds for our newsletter,
and presenting those incredible market updates week in and week out. We
also want to thank the student body at Stern for the great attendance weve
been receiving at our events so far; were trying our best to keep that
momentum going. Keep in mind that this semester the only pre-requisite to
being eligible to apply for E-Committee is attending 6 of our events, and
there will be plenty of opportunities to meet that requirement!
- Matt & Patrick
Throughout the next few weeks we will be hosting events with Evercore,
FINANCE
SOCIETY
NEWSLETTER
October 2014 / Volume XX
MESSAGE FROM THE PRESIDENTS





Get the Picture ISIS and the U.S.
Economy
Federal Reserve Stays
the Course Towards
Higher Interest Rates
Distress in South
Korea
Kevin Tsao gives a short
overview of the recent events
between Ukraine and Russia
Neil Shah offers his thoughts
on the effect the Islamic State
in Syria and Iraq are having on
the U.S. Economy
Rushi Patel analyzes the Feds
current objective and the
implications of a rise in interest
rates
Jag Buddhavarapu provides an
update on South Korean
economic policies and their
effects
Page 2 Page 4 Page 5 Page 6
the
Finance
Society
RECENT NEWS
eBay to spin off PayPal.
The move comes after
activist investor Carl Icahn
pressured management.
Snoop Dogg invested
$50 million in news
aggregator Reddit. He is
joined by musician and
actor Jared Leto, as well as
venure capitalist Marc
Andressen.
Russia's government is
debating whether or not
to impose capital
controls on the ruble as
the currency dropped to
its lowest value since 1998.





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GET THE PICTURE
by Kevin Tsao, Class of 2016
Russia over the course of this year has attempted to assert its power once more in a conflict between it and the
European Union. During the earlier part of this year, Russia annexed Crimea and is now attempting to use military
force to coerce Ukraine to Russias Will.
Historically, the area of Crimea and Ukraine has always been part of Russia since the days of the old monarchs to
the rise of communist Russia and the establishment of the USSR. It wasnt until after the fall of the USSR that this
area became somewhat liberated though it still falls under Russias sphere of influence.
The annexation of Crimea began with the Euromaidan movement in late 2013. The movement protested against
pro-Russian President Viktor Yanukovych, advocating for resignation of government officers, and more integration
with the EU. Although this protest occurred in Kiev, the Crimean government supported Yanukovych and
condemned the protests while urging citizens to strengthen ties with Russia. As Yanukovych was removed from
power, troops, most likely from Russian forces, entered into Crimea and aided the establishment of Sergey
Aksyonov as Crimeas new prime minister. Troops and police forces also acted to isolate Crimea from the rest of
Ukraine.
Aksyonov then proceeded to ask Russian President Vladimir Putin for aid. Putin responded by taking over Crimea
with Russian forces. Then, through the efforts of both the pro-Russian Crimean government and Russia, Crimea
was annexed by Russia in March. The UN and the majority of nations do not however, recognize this annexation
and has stated that it is illegal.
However, now Ukraine is under fire by pro-Russian militants. Their constant clash with Ukrainian forces has
wreaked havoc across the nation. Casualties in Ukraine have exceeded 2,200 with many more injured according to
the UN. Rebels actively target civilians attempting to escape the warring areas. Ukrainian forces are also using brutal
methods in order to stomp out potential terrorists. Russia continues to deny aiding the pro-Russian Militants.
So what are the causes and effects?
Many cite the fact that Putin wants to have control of Sevastopol so the Russian navy can have access to the black
sea permanently without worrying that access rights might be withdrawn. Sevastopol gives Russia a port that can be
accessed easily all year round and leads into central Europe. Additionally, the Black Sea potentially contains a lot of
oil and gas resources as firms such as Exxon, Shell, and Chevron have shown interest in exploring the area. Ukraine
itself also contains many natural resources and ports that would be beneficial to Russia.
Ukraine also poses as a buffer for Russia against the west. The vast piece of land gives Russia space between itself
and Poland and Germany. This prevents NATO from encroaching upon its borders anymore as NATO already has
ties to Latvia, Lithuania, and Estonia. Additionally, the buffer may not be just physical, but psychological as well. If




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Russia is able to maintain control of Ukraine, it will show the west that it still has the power to play on an
international field.
One of the major incidents that has occurred because of the conflict has been the crash of Malaysian Airlines Flight
17. It was presumed to have been shot down around the Ukrainian-Russian border. 298 people died in the crash,
making it the deadliest airliner shot down in history. The worst part is, aboard the plane were many researchers and
scientists on their way to the 20th International Aids Conference.
Ukraine is also on the brink of collapse. Due to its economic ties with Russia, the conflict has resulted in a recession
caused by a decrease in the countrys exports by 19%. Ukraines GDP is down 5% with industries collapsing and
sales declining at a faster rate than during the financial crisis. The countrys currency, the hryvnia, is also collapsing
due to a large increase in capital outflows as investors take their money out of Ukraine. Inflation is also rising at an
alarming rate and is already above 14% in conjunction with a fall in wages. At the current rate, the nation will
default on its debt.
Russia itself is also facing unrest and economic decline due to the crisis. Protestors have taken to the streets in
Moscow in response to Russias involvement in Ukraine. The protestors are motivated by both the Russian troops
killed in Ukraine and by the unjust military intervention in Ukraine. Economically, the cost of Russias intervention
in Ukraine could be over $70 billion dollars. Additionally, Putin has used over $12 billion to prop up the falling
Russian Ruble as well.
Adding on to the expenses Russia already has to pay, the EU has also imposed economic sanctions upon Russia.
These sanctions aim to prevent all citizens of EU countries from purchasing new debt or stock issues by the
Russian financial sector. It also bars Russian banks from listing new stocks on the European Stock Exchanges. The
EU is also banning any new contracts selling military arms to Russia. The EU is also planning on stopping the sale
of equipment used in fossil fuel extraction in deep-sea drilling, arctic exploration, and shale-oil development. Russia
itself has also initiated an embargo on food imports in retaliation, though this may prove to be more costly than its
worth.
The Russian market index, the MICEX, declined 0.7 percent after the report of new EU economic sanctions, but
rallied the next day as the sanctions were not perceived by Russian investors as tough. Investors do admit
however, if EU imposes stronger sanctions the market would crumble. The Ruble was not so fortunate though, as it
hit a new low against the dollar at 37.64. The Rubles decline due to sanctions is also compounded with the
expectations from investors that the US will raise interest rates making less risky investments more attractive
causing emerging market currencies to plummet. As of right now, EU sanctions have already caused $75 billion in
capital flight this year, pushing the economy slowly into a recession.
Overall Russias determination in acquiring Crimea and conquering Ukraine has caused a major conflict between the
sides of the US and EU versus Russia and its sphere of influence. The political effects of this conflict are still a
mystery though the immediate economic effects are quite obvious. Both the EU and Russia will suffer from the
various sanctions, embargoes, protests, and violence that occur in the region. However, the question to be answered
is, How will this conflict affect long-term economic growth in an increasingly interdependent world?





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ISIS AND THE U.S. ECONOMY
by Neil Shah, Class of 2016
A few months ago, President Obamas words echoed throughout the
nation as he announced, our troops are heading home. Parents,
children, and friends of all demographics had high hopes to spend time
with their beloved soldiers and enjoy the new era of peace that was
expected to begin.
But this so-called era of peace was brief, as a small Iraqi affiliate of Al -Qaeda emerged. Within a few months,
ISIS (Islamic State in Iraq and Syria) distorted boundaries in the Middle East and provoked a United States
bombing campaign. And now, President Obama has recalled his troops and is strategizing an optimal way to
prevent the terrorist group from gaining further momentum.
While it is evident that the news of heading back into war is heartbreaking to numerous families, a topic that should
also gain attention is the financial implications this war may have on the economy and the markets.
According to reporters, the war is expected to cost approximately $20 billion per year. To put this number in
perspective, America has been spending nearly $200 billion per year on Afghanistan and Iraq since 2001. Evidently,
in purely a cost-basis, the U.S can afford this war. However, the question to delve deeper into is: Is cost the only
thing we should consider?
Surprisingly, the US economy and the financial markets have not been damaged so far. Investors are frolicking as
the S&P500 and Dow Jones Industrial Average are hitting record levels every week. And this is probably due to the
fact that the concern over ISIS has not negatively impacted oil, a major commodity. In fact, crude oil has dropped
by more than $10 in the last two months, allowing US stocks to rally as lower energy prices have decreased
operating costs for businesses. In terms of the bond market, treasury yields have remained extremely low. This is
primarily because the demand for U.S. government debt has increased in times of fear, thereby increasing bond
prices and lowering interest rates. Perhaps, the situation with ISIS has actually helped equities so far. Low bond
yields are not only making equities appear as attractive investments but also encouraging businesses to raise more
debt and pursue additional investment endeavors.
While the details above make the markets look attractive, investors should definitely not undermine the potential
impact of the terrorist regime. As previously mentioned, oil prices have still not risen and it seems that domestic
energy production has allowed the US economy to continue its recovery. However, if ISIS maintains its growth rate
and expands its presence, oil flows from Iran and the Arabian Peninsula will be disturbed and the US certainly
cannot rely on its own production to fill the gap. As oil supply diminishes, a domino effect will occur - oil prices
will rise, investor confidence will fall, earnings will drop, and the markets will inevitably decline.
And lets not forget another major possibility were talking about a terrorist group that has a strong hatred
towards the United States. Keep in mind that when the US was in war with Al-Qaeda in 2003, our troops killed the
parents and family members of countless 8 year-olds; it is these 8 year-olds that have become adults and want
vengeance on the United States and it is these adults that certainly will not give up without a fight.
Ultimately, as potential investors, this situation should not be overlooked. ISIS has vowed to make an effort to
attack American soil in some manner. God forbid it does not happen; however, if our military fails to end the
terrorist regime and ISIS continues to maintain its threat, our recovering economy and record-high markets will
plummet. Im not saying investors should exit their investments and stash their returns; Im simply saying we must
be cautious, as a dramatic turnaround is certainly a looming possibility.




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FEDERAL RESERVE STAYS THE COURSE TOWARDS HIGHER INTEREST RATES
by Rushi Patel, Class of 2017
On September 17, the Federal Reserve Open Market Committee made the decision to cut its bond-buying program
by another $10 Billion dollars and continue to hold near-zero interest rates for a considerable time. With the
reduction in bond purchases, the Fed is expected to stimulate the economy with $15 Billion during October, after
which it will likely move to end QE completely. Investor reaction was positive in response to Fed Chair Janet
Yellens declaration that the Fed would continue on its previously defined course of maintaining low interest rates
and raising them in the future. The Dow responded with a 0.6% increase, with both the S&P 500 and NASDAQ
following suit with similar rises.
Economists and analysts continue to project that rate hikes will begin late in 2015, a sentiment which seems to make
a great deal of sense given current market conditions. The Fed slightly lowered its growth projections for the
economy as national inflation numbers continued to undershoot Fed targets. This combination of slower than
expected growth and less than 2% inflation make it seem as if the committee does not want to prematurely dial up
rates.
We can expect that the Fed, when the time comes, will raise interest rates in a slow and methodical manner. To
avoid throwing the economy into the twilight zone of perpetually low inflation, it makes sense that the central bank
will be cautious in slowing down the growth and movement of the money supply through increased rates.
Economists widely regard low (not zero) and stable inflation as a major economic goal. Near-zero inflation means
that a buffer from deflation will not exist. Deflation results in lower investment, consumption, and other effects that
depress an economy. This is something that the Fed will want to avoid at all costs, and keeping manageable inflation
is necessary to do so.
The bigger question that must be asked is whether ending the expansive monetary policy is the right action now, or
whether it simply too early to do so. Janet Yellen and other loud voices in the Federal Reserve System seem to think
that declines in the unemployment rate and decent growth are enough to signal that the Fed has done enough and
needs to step back. The consequence of stepping back too late is overheating of the economy, but stepping back
too early will essentially cause deadweight loss. If low interest rates could have been responsible for the creation of
many new jobs and rates are raised before those jobs are created, then those jobs will essentially never be created.
Yellen has faced this dilemma in her short tenure and it has likely been the discussion among members of the Fed in
recent months. Yellen and her colleagues seem convinced by the plethora of knowledge and information at their
disposal that it is time for the Fed to let the economy return to a state of normality. What will that new normal bring
with it?
We can expect to see a slowdown in the growth of developing countries. High interest rates in the US will cause
money that has been deployed in foreign investment to return home, where it will draw relatively higher risk




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adjusted returns. This will moderately reduce the development of these growing economic powers. Furthermore, an
increased interest rate will strengthen the dollar and allow it more purchasing power when it comes to imports. This
will come at the cost of decreased exports, which will cost jobs in manufacturing and other labor-intensive, low
skilled industries. A greater trade balance deficit will be inevitable when interest rates rise.
Fed action will also significantly affect the Federal Government and its budget management goals. The rock bottom
interest rates that came about following the financial crisis have assisted the government in maintaining low interest
expenses. Several economists have gone as far to say that the government was the single largest beneficiary of Fed
policy in that it was able to spend such a great amount at sometimes-negative real interest rates. It is clear that
higher interest rates will shock the government budget and force a more realistic discussion about fiscal
responsibility.
Finally, all eyes will be on the stock market and major financial institutions. Recent discussion about an asset-
bubble has prompted the bears of Wall Street to claim that new Fed policy will pop inflated stock prices. As
interest rates increase, we may find that the stock market was overvaluing companies during the easy money era.
Interest rates will also have an effect on M&A activity and company financing. The amount of M&A activity may
decrease, but we can be more certain that fewer deals with be funded primarily with debt as it becomes more
expensive to borrow. This more persistent use of cash instead of debt will also translate into the daily operations
and expansion of companies. Corporations with large cash balances like Apple will be more prone to tapping their
bank accounts to expand operations or invest than they would have previously. All of this will have strong
implications for how investors, financiers, and managers operate in their respective positions and interact with one
another.
I am not very hawkish when it comes to inflation rates nor am I a member of the increased transparency/End the
Fed movement. The Federal Reserve System has done much for the economy since the Financial Crisis. Although
one can argue that the Fed played a role in the crisis occurring in the first place, it is hard to deny that the Fed and
how it implemented its monetary policy stabilized a world economy that was ready to implode. As an institution,
like all other institutions, the Fed has gone through a trial and error process and has evolved into the powerful and
capable entity it is today. If I had been the Chairman, I may have waited a little longer to raise interest rates simply
because I do not believe that the unemployment numbers are representative of the true state of the economy.
However, I am positive that the men and women of the Federal Reserve were informed, competent, and acting in
the best interest of the American people when they made their decisions.
This being said, investors, financial institutions, companies, and governments must begin making changes in their
operations for a world after zero interest rates. Classical economists are saying that the party is ending while
Keynesians are patting themselves on the back for a job well done. Either way, a rise in interest rates goes beyond
economic engineering into the realm of symbolism. When Janet Yellen announces the first-rate hike sometime next
year, rest assured that the Financial Crisis and Housing Bubble are behind us. Whether we face continued growth or
another disaster on the horizon is for the future to decide.
DISTRESS IN SOUTH KOREA
by Jag Buddhavarapu, Class of 2016
The South Korean economy has seen some ups and downs in the past year, so I
thought it would be interesting to recap come of the recent events and provide an
opinion on the future of one the worlds most advanced economies. Exports are one
of the key contributors to South Koreas economic growth, and the recent numbers




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seem to be encouraging. Exports in July rose 5.7% from a year earlier,
following 2.5% gain in June and a 1% drop in May. The growth of exports
in July actually beat median estimates, which called for a 4.6% increase.
South Korean shipments rose in July primarily because of a pick-up in
demand from advanced economies. Exports to the United States rose
19.4% from a year earlier, and shipments to Europe and Japan also
increased during this period.
Although this gain in exports is a good sign, there are still some concerns
that need to be addressed in South Korea. Exports to advanced
economies have been positive, but exports to emerging countries such as
China have been worrisome. China consumes almost one fourth of South
Koreas exports, and these exports fell 7% in July, and have consistently
been falling for three straight months. This is a huge concern, as Chinas
economy is expected to continue slowing down in the near future. Other
concerns going forward include slowing exports of computers and
petrochemical products, as well as 5.8% growth of imports in the country.
This overall decline of the worlds fourth largest economy was caused by a
few recent developments. One of the major factors is the slowing down of
the Chinese and Japanese economies, which have led to a decrease in
South Korean exports. Another major incident was the sinking of the
Sewol ferry in April, which dampened consumer spending on travel and
leisure in the past few months. Over 300 hundred people died on the
ferry, and government officials have been struggling to convince
consumers to revert back to spending on travel. Another long-term
concern for officials has also been the increasing household debt. South
Koreas household debt has almost doubled to $1 trillion over the past
decade, and legislators now fear the possibility of a high default rate on
the outstanding loans. Nomura economist Kwon Young-sun is
concerned that the Korean economy could fall into a debt trap.
In order to combat the potential decline in the South Korean economy,
the government has begun to roll out some initiatives. In July, the South
Korean government announced a $40 billion dollar stimulus package in
order to boost the slowing economy. Major provisions include a relaxation
of limits on mortgage loans, in order to kick start he stagnant property
market. South Koreas Central bank also cut interest rates in August, to
increase borrowing and, in turn, consumer spending. I am wary of these
stimulus programs, especially since they could potentially lead to
household debt further increasing. An overall improvement in the South
Korean economy must stem from bordering nations like China as a result
of the countrys high dependency on exports. As can be seen, the situation
in South Korea exemplifies the interdependency between the worlds
major economies.
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