Extraordinary Genius - Chapter 243 – Loans (Part 1)
Kovski was fast, and on the third day, Feng Yu signed the loan agreement for 100 million Rubles. He would repay the loan amount together with the incurred interest on the 6th year. The interest rate was 13% a year, and it was calculated in simple interest.
Feng Yu gave Kovski the 3 million Rubles as promised, and he also gave Brother Ke 1 million Rubles for his help. Although the loan period was shorter than he wanted, Feng Yu could still accept it. The interest was also lower than he expected.
The money was transferred to Feng Yu’s Hong Kong bank account, and he immediately transferred the money to the various parties.
“Brother Ki, I can accept higher interest. You don’t need to bargain on the interest rates.” Feng Yu wanted to give lesser rebates, and use higher interest rates to entice the bank managers to approve the loans.
Kirilenko agreed. It would be easier for him to negotiate with the bank managers with higher interest rates. Today, they will be meeting the Belarus Branch Manager.
Feng Yu wanted efficiency. He wants to settle the loans in the shortest time. In a few months’ time, there will be changes to Rubles’ exchange rates. The exchange rate for Rubles against the dollar will depreciate from 0.6:1 to 1.8:1. There will be even more depreciation later!
With the help of Kirilenko, Feng Yu loaned a total of 300 million Rubles from 3 Soviet Banks. The total rebates amounted to 11 million Rubles. The rebates might be high, but compared to Feng Yu’s profits, it was peanuts!
“Feng, you want to continue to get loans? Maybe we can get more loans from the banks of the allied countries. But the loan amount would not be so high.”
“We still can get more loans? Brother Ki, even if the loan amount is only 10 million Rubles, I will also loan!”
This was the once-in-a-lifetime opportunity. Feng Yu wants to make full use of it.
Kirilenko was puzzled. Why did Feng Yu want so many loans? The interest rates were getting higher and higher, and Feng Yu did not care. What was he going to invest in? Would the profits be about to cover the interests from the loans?
Kirilenko asked Feng Yu after the third bank’s loan was approved.
Feng Yu was also waiting for Kirilenko to ask him. He wanted to bring Kirilenko along. If everything goes smoothly, he wants to invest in natural resources with Kirilenko.
It was impossible to own mines or oil fields in the Soviet Union without strong backings.
In February next year, the Gulf war will start, and the prices of crude oil would fall. That would be the time for Feng Yu to buy some oil fields. Also, Rubles will depreciate drastically. Even if he signed an agreement to purchase the oil fields now, he could make the payments sometime later. In a few months’ time, Rubles will depreciate more than 3 times and the oil fields will be dirt cheap!
“Brother Ki, do you remember I told you that this is an opportunity to earn money? If the Soviet Union is disintegrated, what do you think will happen to Rubles?”
“Rubles? What can happen to Rubles? After the disintegration, some countries might issue their own currencies, but Rubles will still be the main currency.” Kirilenko had not thought about this at all.
“Brother Ki, look. Your country’s people buy commodities using food tickets. China used to be like this too. But after we open up the economy, we do not use food tickets. We use RMB to buy the things we wanted. This will cost the prices of commodities to rise, right?”
“Price hikes are normal. What’s wrong?” Kirilenko asked.
Feng Yu shook his head. Kirilenko does not understand economics at all. When demand outweighs supply, the prices will rise, and there will be inflation, which will cause the currency to depreciate.
Now, the Soviet Union was lax in regulating foreign banks. Many large banks from Europe had expanded into the Soviet Union. These banks used underhand methods to get loans from the Soviet Union financial institutions. This way, the Soviet Union will have to print more money and increase the inflations.
“Brother Ki, have you ever thought about why those foreign banks took loans from the Soviet Union banks? Do you still remember when we are talking to the Belarusian Bank Branch Manager, Mr. Chev had told us that some foreign banks had borrowed a large sum from his bank for some projects? Do you think that those projects are real?”
“Of course not. They want to develop real estates in the Soviet Union. We, Soviets, all have our own properties and why do we need so many houses?” Kirilenko said proudly. When he heard this from the Belarusian Bank’s Branch Manager, he thought that these foreign banks were idiots. If you want to build houses, you must be able to get buyers first before you can earn money. There was no lack of homes in the Soviet Union.
Those people were idiots? The Soviet Banks’ Managers were the real idiots! Those projects were fake, and their main intentions were to get loans. Maybe those Bank Managers knew about these, but they just approve the loans to get the rebates.
Why did Feng Yu say that Kirilenko could acquire those mines and oil fields? It was because the Soviet Union was also restructuring their state-owned enterprises to shareholdings. The Government was issuing shares to the employees of the state-owned enterprises. On average, each employee could get about 10,000 to 20,000 Rubles worth of assets. Based on the current exchange rates, it was not a small amount.
The Soviets had become more affluent, but their living conditions had not improved. There was a lack of commodities. They could only save their money in the banks. But which banks will they use? Foreign banks’ interests were higher and had better services. There were also free coffee and tea at their branches.
So, most of the Soviets saved their money in Foreign banks and their local banks would not have enough money to loan the foreign banks. The Soviet Union’s solution was to print more money which resulted in inflation.
“Brother Ki, are you thinking that those foreign banks are idiots? Most Soviets had saved their money in foreign banks, and when it reaches a certain amount, it will affect the prices of the Soviet Union’s commodities. Now, the Soviet Union is a market economy, and it would be even easier for those banks to inflate the prices of commodities and depreciate Rubles.”
“What? Rubles will depreciate?” Kirilenko was not happy when he heard this. Why would Rubles depreciate?
“That’s right. A shirt which cost 10 Rubles will be sold for 20 Rubles, due to a market economy, where the highest bidder wins. But it is still the same shirt. If you think about it, the Rubles had depreciated by 50%! This will cause inflation! You know what inflation is?”
Kirilenko shook his head in a daze. What’s inflation?
Feng Yu sighed. It was hard to explain to someone who doesn’t even know the basics of economics.
“Anyway, all you need to know is that the Rubles will depreciate soon and it will depreciate by a lot. I will exchange the Rubles from the loans to USD, RMB or Yen. After Rubles had depreciated, I will change the currencies back to Rubles. This way, I will earn. You understand now?”
“That’s why you are taking loans now? I was still wondering why you want to repay the interest with the principal sum together at the end of the loan period! Tell me, how serious will Rubles depreciate?” Kirilenko finally understands what Feng Yu was doing.
“If you trust me, then use your connections to get loans too. I guarantee that within 3 months, Rubles will depreciate like crazy! You will earn profits of at least two folds!”
Translator notes: Is this considered cheating or taking advantage of his future knowledge? I will do the same if I get to travel to the past. Will you do the same thing as Feng Yu?
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