After ordering three of the latest Ferrari, Lamborghini, and Maserati models for a total of 300 million lire in Italy, Zhongshi deposited six million dollars into the Italian Credit Bank and then set off with Andrew for the next stop on their European tour: London.
London is the capital of England, the largest city and port in Europe, and the largest metropolitan area in Europe. It ranks alongside New York, Paris, and Tokyo as one of the world's four major global cities. Additionally, London is one of the world's largest financial markets, with its financial district housing the world's largest foreign exchange market, insurance market, gold market, and copper market. In areas such as over-the-counter derivatives, foreign exchange, and financial trading, it is a global leader.
Not far north of the iconic Tower Bridge and London Bridge stands a windowless, fortress-like eight-story building, the Bank of England, known as the "King of Banks." To its north is the box-like London Stock Exchange.
To the east of the Bank of England and the London Stock Exchange is the headquarters of Lloyd's, the world's wealthiest and highest-earning insurance organization, the center of the global insurance industry. A bit further east is the London Metal Exchange, where most of the world's precious metals, such as gold, silver, and copper, are traded. To the south of the Bank of England, near London Bridge and Cannon Street Bridge, is the London International Financial Futures and Options Exchange, the oldest, largest, and third-largest futures and options exchange in the world.
This is the (old) financial district of London, a place known as the "Square Mile," where over 600 banks from around the world are concentrated, making it one of the most capital-intensive places in the world, comparable to Wall Street across the ocean, and in some aspects, even surpassing it. (The new financial district is further east and had not yet developed in the 1990s.)
At this moment, Zhongshi and Andrew were strolling on Tower Bridge, a stone bridge known as the "Gateway to London" that has stood for over a century and is one of London's iconic landmarks. Notably, the bridge was designed to meet the needs of both shipping and road traffic. When large ships pass through the Thames, the bridge's bascules, operated by machinery in the main towers, open and fold upwards, then lower again after the ships have passed, allowing traffic to resume.
Don't underestimate this design. Each of the two movable bascules weighs over a thousand tons, and the machinery used to raise and lower them has been in continuous use since the bridge was built, without any malfunctions.
Zhongshi and Andrew climbed the stairs inside the main towers to the upper walkway for pedestrians, leisurely enjoying the views up and down the Thames. It was a sunny day, and it was noon. From the upper walkway, they could see the towering skyscrapers of the financial district in the distance, and a sense of ambition welled up in Zhongshi's heart.
In his previous life, he had only made a brief stop in London and hadn't had the chance to explore it thoroughly. This time, coming to London with Andrew, he could finally make up for that regret.
"Andrew, I heard you bought an apartment here. Is that true?" Zhongshi asked casually as they strolled.
"Ah? Yes, although my main business is in Hong Kong, London is still my hometown, so..." Andrew was also excited. With some spare money, he had considered investing in London's real estate.
"Did you pay in full or take a mortgage?" Zhongshi asked again.
"Of course, a mortgage! Boss, you can't trick me on this, ha ha." Andrew laughed. He never relaxed around Zhongshi, who he admired immensely for his shrewdness in certain areas.
The reason he chose a mortgage over a full payment wasn't because he lacked the cash, but because he didn't want to incur the "opportunity cost" of paying in full.
Opportunity cost, in economics, refers to the value of the next best alternative that must be forgone when a choice is made. In other words, by choosing a mortgage, Andrew would only lose some interest, but the "opportunity cost" could be the significant profits lost by not using the money for capital operations.
"Ha ha, you're smart! What do you know about the real estate market in the UK?" Zhongshi smiled and changed the subject.
"Not good. The UK's economy hasn't been doing well in recent years, so I guess most people, except those in the financial district, are struggling," Andrew said, pointing to the financial district across the river, his tone tinged with sarcasm.
"What if interest rates rise? Wouldn't that make the real estate market even worse? Let's go to the bar!" Zhongshi said, leading the way to the bar inside the main tower.
Inside the main tower of Tower Bridge, there are museums, shops, and bars. After walking for a while, they were both a bit tired. Andrew was still not used to Zhongshi's vague way of speaking and followed along, puzzled.
In the bar, Zhongshi, being underage, could only order a soda, while Andrew drank a large glass of beer. The bar was filled with young men in suits, likely working in the financial district to the north, who had come to relax during their lunch break.
"Let me tell you, the news isn't good lately. It's said that American financial groups are targeting the pound. Your bank's foreign exchange department must be very busy, right..."
As Zhongshi and Andrew had just sat down, they heard a man in a Hugo Boss suit loudly telling his companion. Hugo Boss is a German brand, and this man was likely from a German financial group.
"Andrew, can you explain to me about the pound and foreign exchange?" Zhongshi, having listened for a while, felt more and more confused and asked Andrew.
This wasn't surprising. In his previous life, he had entered the financial world later and hadn't received systematic training. He was familiar with bond markets and quantitative arbitrage but knew only a few financial instruments, such as interest rates and derivatives.
"What? Boss, you can't be serious, you don't know these things?" Andrew's eyes nearly popped out, and he almost spat out his beer. After a few violent coughs, his face turned red. "Boss, are you really testing me or just joking?"
"You don't know, but I really don't understand foreign exchange. If you don't explain, I'll ask that guy. What do you think?" Zhongshi's face turned serious, and he felt a bit amused. In Andrew's mind, he was omniscient, which was understandable, as how could someone who didn't understand foreign exchange be so influential in the financial markets?
"Don't, don't... Boss, I'll explain!" Andrew quickly stopped him. He cleared his throat and said seriously, "Actually, the foreign exchange market is a bit complex, but the principles are similar to other financial products. It's basically a comparison of the prices of goods between two countries."
"Take this beer, for example." Andrew lifted his large glass of beer. "This beer might cost 14 Hong Kong dollars in Hong Kong, but here, it costs one pound. So the exchange rate between the two currencies is 1:14."
"Is it that simple?" Zhongshi looked skeptical.
"Of course not, I'm just giving an example. In reality, it's not just about beer; it includes many other goods, basically everything. Additionally, factors like tariffs, national economic strength, and inflation rates must be considered to determine the exchange rate."
"Is that all? Once determined, does it stay the same forever?" Zhongshi thought for a moment and asked again.
"Of course not. In a free market economy, exchange rates fluctuate constantly. After all, the development of different countries varies daily, quarterly, and annually, so exchange rates are not static." Andrew was quite pleased, realizing that his boss really didn't understand exchange rates well.
"What causes these fluctuations?" Zhongshi asked again.
"Appreciation or depreciation, for example. If a country's economy weakens, its currency will decline, and foreign exchange traders will be unwilling to hold that currency, leading to selling in the market. This is similar to stocks; when more people sell, the exchange rate naturally drops, meaning depreciation."
"However, this isn't absolute. Central banks, considering economic development and political factors, sometimes intervene to prevent currency depreciation. They buy the currency in the market to keep the exchange rate within a controllable range. A country's foreign exchange reserves are used for this purpose, as the value of the currency is crucial for a country's imports and exports, especially for an island nation like the UK."
"I see. What if the central bank can't support the market's selling of the national currency?" Zhongshi finally understood what the pound crisis was about.
"How could that be? Which institution in the world has the power to challenge a country's central bank? Impossible! Impossible!" Andrew laughed, saying "impossible" twice.
"Nothing is impossible!" Zhongshi's face showed a mysterious smile. He finished his soda in one gulp, snapped his fingers, and called out, "Waiter, the bill!" (Thank you very much to reader 0763 Feilong for the tip! I hope more readers will support this book. I'm asking for Three Rivers votes. The success of this book needs everyone's effort. Thank you!)