Understanding of the principles of Financial Economics

In this assignment, you will demonstrate your understanding of the principles of Financial Economics. The work will build upon the two previous writing assignments.

Understanding of the principles of Financial Economics

In the paper, you will (a) demonstrate your understanding of the principles of Financial Economics as discussed in our class, (b) show your ability to support an argument using those principles, and (c) produce a polished writing sample to share with prospective employers and graduate schools.

Use the formatting guidelines given in “Topic 6: Writing for Financial Economics and Beyond”. I suggest you start from the Word template I provided for the last assignment.
Upload a Word document to Blackboard
8.5×11 inch paper with 1” margins
Times roman 12-point type
Page numbers on pages two and beyond
1½ line spacing (easy to read)
American Economic Review & Chicago Style


Write the body of the paper before writing the abstract, introduction, and conclusion. It is much easier to write those sections once you know your argument well. The body of the paper should include:
ü  A clear and specific statement of the innovation. Bitcoin, blockchain, digital currency, virtual currency, and cryptocurrency are all different things. Similarly, algorithmic trading, machine learning, and artificial intelligence are different. You must decide exactly what your topic includes.

ü  An explanation of the technology involved. What is the difference between algorithmic trading and artificial intelligence? How does the blockchain operate? How is artificial intelligence related to customer support?

ü  A rationale for selecting the innovation and some positive facts to support it.  There was a tendency to write in the last assignment, “Bitcoin will be the greatest innovation of the next 20 years. It was created and has been in use since 2009.” Well then, why is it going to have an impact in the future? Perhaps your point is that while Bitcoin was created in 2009, it has not yet come into wide use. You could support this with facts and also data about current and potential usage. Perhaps it should be compared to dollars of PayPal or credit card transactions to argue that it has room to grow.

Maybe you should say that while there are many virtual currencies (Ethereum, Ripple, Litecoin, Tether, Bitcoin Cash, Libra, Monero, EOS, …), new coins are no longer created, and Bitcoin is growing while the others are shrinking. Here again, facts are required.

Understanding of the principles of Financial Economics

ü  Comparing the next new thing in finance to the most significant innovation from the past 20 years, as you identified in the first writing assignment.

ü  Ultimately, this is an economics paper. Note the term “economics” in the title. Most of the work should focus on the economics of the innovation. Does it reduce cost, and by how much? Are there barriers to entry (a big problem in digital currency)? Does the law of one price apply? How will the price incorporate the risk of default, liquidity risk, etc.? Is there a supply/demand imbalance? Does the exchange mitigate counterparty risk? Does the innovation complete the market? Is there a connection to behavioral economics? Is there a SIF which justifies the innovation even if not entirely rational? Does the value rely on an expected value and also growth over time, as in the Gordon model?

ü  Additionally, arrange the body of the paper in sections and paragraphs. The list above is not an outline, but you should have a clear strategy for arranging your points and ideas.

ü  Lastly, write the conclusion, introduction, abstract, and references after you write the body of the paper.