Where have all the traders gone? - Rey Husain

This article discusses the impact computers have on the investing world. Investors have realized that the processing speed and volume that a computer offers has led to a “quiet revolution” throughout the financial world. Today Investors are in what is called an arms race among other investing firms to develop the best algorithmic trading systems. These trading systems help decides which trades are the most profitable and then executes the deals.
When looking back at the market, ten years ago algo-trading barely existed, but according to research done by a Boston-based consulting firm called the Aite group, one third of all trading decisions in the U.S. markets are now made by machines. The Aite group predicts that by 2010 more than half of trading decisions will be made this way. One really interesting statistic that I mentioned in class was that Deutsche Bank in London has over 70 percent of spot trades carried out each day without any human intervention. The impact of algo-trading is that even if an individual does not own any shares, more than likely shares within your pension fund are being bought and sold using algo-trading.
Algo-trading is an efficient practice considering that computers can make multiple trades, monitor thousands of stocks and do it all at a remarkable speed. Another point is that transactions made by machines can also be done without anyone even noticing! Considering that the market is also reacting to purchases and sales of one another, there is significant profit potential when transactions are not noticed. When a person sees a stock change price, they might react in a few hundred milliseconds. A computerized trader is at least 10 times faster! These few hundred milliseconds might seem trivial, but if the price changes by a fraction of a percent in the split-second before a trade worth several millions, it could mean a difference of tens of thousands of dollars. Ideally a computerized trader offers a trader low latency market access, which means that there is little delay between placing an order and seeing it fulfilled.
Another advantage to an increase in computerized trading is the use of Stealth- trading. Many of the leading brokerage firms now have computers running volume-weighted average price (VWAP) algorithms. The algorithms break up big transactions into significantly smaller and separate transactions so that the rest of the market does not detect what a company may be doing. In an attempt to diffuse the use of these algorithms, Pattern-Spot software works to detect algos trying to sneak in transactions. This type of software also attempts to determine what is going on with these algos by studying the size of transactions.
The final point of this article which I found to be the most interesting were recommendations on how to beat algo-trading in markets. One of the most important concepts is to go with your gut feeling by making predictions in regards to where the market will be going. This of course means using some computerized data to help distinguish additional data needed. Another strategy suggested is looking for signs of liquidity. This means looking for the presence of buyers and sellers for specific stocks can open up a chance for a trade ahead of algo-trading. Unfortunately, signs of liquidity have also opened the door for new types of algo-trading called “sniper” algos which wait for a suitable buyer or seller to emerge and then conduct the trade as fast as possible, before the price can be affected by other traders.
After reading this article, it amazed me to see how much of an impact computerized algorithms have on the stock market. However, one important thing to realize is that human traders can make up for lack of data with instinct and experience. These components are what essentially designed these type of programs in the first place.


Matthews, Robert. "Where have all the traders gone?." New Scientist 194,260602 June 2007 42-45. 13 Noc 2007 .

Phil- Google fails to win EU approval for DoubleClick deal

Shannon, Victoria. "Google Fails to Win EU Approval for DoubleClick Deal." Herald Tribune 13 Nov. 2007. 14 Nov. 2007

The article talks about how Google was trying to buy DoubleClick, which is an Internet advertising company. Google was prepared to buy the company, but the European Commission refused to approve Google's $3.1 billion purchase. The reason why this deal did not go through was because the European Union was concerned about competition and it need more time to think over the impact such a merger would have on the Internet advertising business. Also, they are waiting on approval from the U.S. Federal Trade Commission. Furthermore, Internet regulators in Australia and Brazil have approved the deal.

Privacy issues also come into play in this article because since Google is can gather a lot of data in terms of demographics. Having a large advertisement company like DoubleClick use the information to make a marketing entity would be like having direct information from the IRS. ComScore performed a study of Internet searches and discovered that almost 57 percent of Internet searches are done through Google. Since that is true the information Google collects through their search references people use. That information could be used to place advertisements on the sites owned or run by Google. Since the European Commission rejected the merger between Google and ComScore, it is still unknown what Google will do.

I am kind of glad this merger did not work with the European Commission because what is searched on the Internet is the customers choice and that information should not be used to help companies figure out what what advertisements to make. Even though people with stocks in Google would have loved if the merger worked out. It would have probably would increased Google's revenue. Google could still be able to get ComScore because the U.S. Federal Trade Commission still has not given their opinion about it.

Banking 2.0

Sorry guys, I just saw Rawan posted this same article but I had already written mine up before I went to the site...here's my take on it:

Social Networking, Web 2.0, and Banking

No discussion of business today is complete without the mention of Web 2.0 or some form of social networking. Banking is not exempt from this trend.
Banks are especially eager to make a connection with young customers who may not have an existing relationship with another financial institution. Building loyalty early on is key to developing valuable lifelong customers. It is more difficult for banks to establish this “cool quotient” as a part of their brands compared to companies in other industries because banking is often perceived as boring and dull. Innovators in the industry are looking to Web 2.0 resources to change this.
Wells Fargo created Stagecoach Island. It is a virtual world where users can interact, and engage in fun activities, but also learn about money management. Royal Bank of Canada (RBC) created a special p2p forum for young people to exchange financial advice in one common area. TD Bank runs several blogs and established a Facebook profile early on.
All of these are aimed at making stronger connections with their customers. Virtual worlds have gained in popularity so Wells Fargo figured they would establish their name as a part of it. RBC knew young people already looked to their peers for financial advice so they decided to facilitate this discussion. TD sought out the ways they knew young people communicated and spent their time and looked to establish a presence in these networks. The common theme in these three initiatives was not to push specific bank products, but to just engage the customers.
Marketers understand the viral nature of the internet, or, simply how fast ideas can spread between people. This goes for good or bad opinions. While there is an amazing opportunity to reach a large audience, there is also an increased aspect of reputational risk at hand. It is critical for banks to know what the online community is saying about them. Wells Fargo VP of Social Marketing combs blogs each day to find posts on his company and often responds to any postings. The opinions voiced by bloggers and circulated through prominent networks have a large impact on how any brand or product is perceived.
Web 2.0 is a unique challenge for any business. It forces executives to adjust to a new set of expectations and deliver to consumers or face being left behind. Banks know the key to success in their business is engaging their customers as much as possible and developing long-term relationships. New media is a great opportunity to do this and you will undoubtedly see more banks embrace the methods used by those in this article soon.

http://www.banktech.com/features/showArticle.jhtml?articleID=202801088

“China’s E-Tail Awakening”

Deepak Shahani

New online-payment systems are drawing wary consumers into the world of Web commerce.

BusinessWeek, p.44, Nov. 19, 2007.

In this article, it discusses the increased use of online payment systems in emerging economies such as China. In China, people are more willing to use online payment methods similar to PayPal, rather than using credit cards. Credit card penetration in China is low, as compared to other countries such as India, where their financial systems is more deregulated and more developed, aided by the infiltration of foreign banks.

In China there is an interesting phenomenon, where the citizens are more comfortable with paying for everything by cash. It is difficult to change consumer habits, but this is changing slowly. The article mentions that the skepticism about the use of credit cards is because they are: “afraid of online fraud, so they don’t use them.”
As a result, online commerce or e-retailing has been facing many challenges in China. Nevertheless with the growth in online payment companies, they are seeing increasing growth in the industry: “Consumer e-commerce in the country will top $1 bn in 2007.” It is also expected that the industry will grow at an average of 34% in the next three years.

Online payment methods has greatly affected e-commerce in China, and has provided a solution to the security issue faced in the minds of the Chinese people. Many businesses are experiencing increasing sales from their online sections of their business such as Joyo Amazon and Taobao company which uses AliPay. AliPay is the number 1 online payment service in China with a market share of 50% of the market. AliPay has greatly increased the confidence of online shoppers. A method to increase security, enforce contractual obligations, and reduce the problem of trust, is where online payment to a seller is only made when a buyer has received the merchandise.

Lower-tech methods of payments still need to be provided as not all citizens are comfortable with online payments. Therefore businesses need to train staff in recognizing counterfeit bills at cashiers and face the risk of its delivery people to carry large amounts of cash. Chinese businesses prefer customers to pay through more secure methods such as by credit card or online payments because it is more efficient and less risky. Yet as the saying goes, old habits die hard, and the Chinese have a habit for paying for most things with cash.

Junichi - Blackboard and Sony Partner to Offer Contactless Card Technology in U.S. Education Market

November 7,
http://www.lexisnexis.com.proxyau.wrlc.org/us/lnacademic/results/docview/docview.do?risb=21_T2496218431&format=GNBFI&sort=RELEVANCE&startDocNo=1&resultsUrlKey=29_T2496218441&cisb=22_T2496218440&treeMax=true&treeWidth=0&csi=8054&docNo=1

Nowadays in Japan, there is no need to carry wallet with you when you go shopping or ride a train. The only thing you need is your cell phone. “Invisible money” which is called “electric money” has widely spread all over Europe and Asia.
The Japan's largest mobile phone service provider, DoCoMo, became the world's first mobile phone operator to offer its own branded platform for mobile phones incorporating a credit card and a contactless payment capability. It utilise Japanese software vendor Sony's FeliCa near field communications system. The FeliCa chip enables mobile devices to store multiple forms of data including bank account numbers and balances, credit account information, transport service passes and personal identification. The FeliCa system was first adopted by East Japan Railway in November 2001 for its Suica contactless transit card and now Moble Suica has appeared in early 2007. Stated quite simply, it is like there is a “credit card” and “Smart Trip” inside your cell phone. In Moblie suica, process will be conducted as follows. First, holder have to "charge" e-money to cards before using them and how much they can pay with the cards depends on how much they have charged them. The electronic money which is charged to a mobile telephone will be settled an account by the credit card which holder registered. After, you charge it, you just put your cell phone above the receiver and it will settle account immediately which is about 0.1 second.
However, there is a security problem. When registering the credit card, all you need is holder’s name, birthdates, and credit card information such as card number. In this registering process, you don’t need your PIN number. And there is a possibility that people abuse the card information that they obtained illegally and register since only one part of the information of the card company being collated with member information.
As mentioned above e-money has been widely spread all over Japan, but not in U.S. yet. However, this is likely to change in a very near future. On Nov 7, Sony Corp. said it has inked a deal allowing U.S. education systems developer Blackboard Inc. to use "FeliCa" contact-free integrated circuit chips in its student identification card system. Blackboard's current student ID card system, dubbed Blackboard Commerce Suite, uses magnetic cards; however, by using Felica IC chips, Blackboard will be able to add electronic money functions to the cards.
With this, using e-money will be common among the university student. The biggest issue to popularize e-money would be advance of security problem and establishment of receiver. Even though the Blackboard supply card with e-money function, you need a receiver to use it. Therefore they should increase the company number which adopts e-money. I think that the faster the problem (security, receiver etc) will be dissolved, the sooner the life without wallet will become reality in U.S.

Rawan- Banks Are Creating a New Kind of Customer Intimacy With Web 2.0 and Social Networking

By Nancy Feig
Bank Systems & Technology
November 01, 2007
http://www.banktech.com/news/showArticle.jhtml?articleID=202801088

With the advance in social networking technology, banks are looking at their strategies to create competitive advantages in social networking, which shapes about 72% of active teens using social networking. Banks are going to introduce Web 2.0, which is the second generation for World Wide Web, including: Myspace, Gmail, Facebok, etc. The banks that are leading the way: Well Fargo, RBC, and The Toronto-Dominion Bank.
In this article it stresses out the importance and the rapid speed of technology in social networking. Banks are realizing how different the new generation is communicating, and they have to find a strategy to meet their needs. For example: Well Fargo realized that people are more approached through social media, with them studying into that they came up with a blog; with more experiment that choice topics like: “student LoanDown,” and Stagecoach Island blog. In the other hand, RBC, other than using blogs, they also engaged in facebook, and podcasts. They also came up with RBC p2p, which is for student, and it is also done by students. They would learn more about budgeting and saving, or anything they are interested in.
With this increase in the use of Internet and high tech the article also states that this new generation has little or no association with financial institutions, and having more potential. I found it very interesting how banks are getting to the new generation, and never realized that the use of social networking when that far too fast. It also seemed that they are assembling social networking a priority to the new generation of customers. Apparently, social media is the new strategy to maintain customers.

The bad news about online insurance-- Jess Roper

http://www.insurancenetworking.com/protected/article.cfm?articleId=3685

http://www.globalchange.com/insurance.htm

Between the two articles that I read, I found that online insurance is not the best idea. The global change article points out the multitude of problems that come along with having online insurance: from not actually having a binding contract to no firm price. The article went into how online insurance could work for people in certain countries, but not other countries. Meaning, if you are an American citizen and you drive into Canada or Mexico and get into an accident, the insurance will not cover you because you are no longer in the United States and the insurance is not valid in any other country.

Even aggregators of insurance companies are not necessarily fair to individual customers. They give the price of only certain insurance companies: those who are willing to give them a commission to advertise their company online.

Another problem with online insurance companies is that they do not necessarily care who you are or if the information that you gave is accurate. They do not have people that could come and check up on you. They do not know if the address or phone number that you gave is necessarily correct unless they check up on you and many online companies think that if the credit card information you gave is correct (meaning that the payment went through), the other information is correct. This can be a big problem when it comes to getting a claim check. If you accidentally switched two numbers in your zip code or something similar, then you may never get the check.

The second article goes into customer satisfaction of online transactions. 49% of customers surveyed had problems with online insurance. Almost half of the people were not happy with their online insurance. While that means that half is happy, there is a very large chance that you will not be happy either.

With all this information, you would think that I have a very pessimistic view of online insurance. I do to an extent. I think that all online companies are risky and probably a bad idea. There is no reassurance that they will be here tomorrow. However, without the costs of a physical location, they most likely have lower rates than traditional insurance companies. Traditional insurance companies who have gone online to streamline their service are a very good thing. There is reassurance that they will be there tomorrow because they have the physical locations. It is also nice to be able to walk into their offices or call the office and speak to a human.

Jeremy Kraner - Advantage WaMu

Source:  Advantage WaMu:  The Check Isn't In the Mail

J Nicholas Hoover, InformationWeek; 9/17/2007 Issue 1154, p71-72, 2p

This article discusses and examines how a strong emphasis on IT development has allowed Washington Mutual, otherwise known as WaMu, to become one of the most successful banks in the country.  Having one a large number of awards for applying newer forms of IT to make online banking easier for consumers, WaMu is often times used as a model for how other banks can improve their IT.  Whereas, however, most banks have complicated views of e-commerce, WaMu takes a far more simple approach when attracting consumers.

The article also examined WaMu's Enterprise Decision Engine, a group of systems used to determine if a customer should get a loan, and if so, for how much.  This engine is built upon six different systems that calculate everything from credit scores, risks, to appropriate lines of credit.  It then compounds all of this information onto one single platform.  Since the implementation of this engine, loan decisions have been made far more quickly and consistently.  This is because all decisions are based upon the same credit risk information instead of other methods that often relied upon human intuition.  Before, where a decision could take anywhere from weeks to over a month, now a small business loan decision can be made in as little as 16 seconds.  This is all due to the Enterprise Decision Engine.

Unlike many other banks, WaMu is always looking to upgrade and overhaul its website in order to better attract consumers.  Whereas other banks are more hesitant to change their websites, WaMu is always trying to make their more easily accessible and navigated.  For instance, just two years after the previous website overhaul, WaMu is planning for yet another overhaul.  When asked as to why another overhaul was planned so quickly, especially in the light of all the recent awards, WaMu's director of e-commerce was quick to comment "Well, that's innovation".  One of the more popular "innovations" recently implement was a blog run by Stephen Rotella, chief operating officer of the bank, which received over 4500 replies in its first four months of operation.  This is all made even more impressive by the fact that the e-commerce team is made up of just over 200 employees, which is noticeably smaller than some of its competitors.  

Overall, I found myself very interested and impressed in the steps taken by WaMu to improve their IT.  These days, more and more banks are far more concerned with spending money on appearance and prestige as opposed to focusing more of their funds on advancing their technology and making it easier for consumers to access the banks features.  However, WaMu seems to be more focused on making online banking far simpler and allowing its customers greater freedom.  I believe more banks should follow WaMu's lead by pushing the envelope a bit more instead of relying on older technologies to carry them through an ever changing online community.  Maybe then, other banks wouldn't have to try so hard for their e-commerce to be like WaMu.

John Robinson III Open Access

Open Access
Anita Hawser. Global Finance. New York:Jun 2007. Vol. 21, Iss. 6, p. 37-39 (3 pp.)
http://proquest.umi.com.proxyau.wrlc.org/pqdweb?did=1294726761&Fmt=4&clientId=31806&RQT=309&VName=PQD

The article explains how Sarbanes Oxley has made companies push for more transparency when documenting their finances. To help manage their treasuries companies have put together treasury management systems (TMS). The TMS helps companies manage their cash, cash forecasting, finance and investments, ensures sufficient funds for acquisitions, and interest rate and FX management functionality. TMS seems like a great tool for companies because the IT allows more control and away to forecast or choose projects a company should invest in. In addition, TMS is suppose to replace excel spreadsheets.
I think TMS is a great tool for companies looking to get an edge in their perspective industry. However, with all the new financial tools emerging it seems companies will have to expand their IT budgets. It seems like every few months there is a new financial tool coming out and companies are forced to go out and purchase it to maintain transparency and to abide by the Sarbanes Oxley Act. In addition, if TMS is suppose to replace spreadsheets companies are going to have to spend more money on training their employees to run the system and it could lead to the lost of jobs and creating new jobs.
To help companies who may not have the funds to support TMS a company called Salesforce.com started delivering software applications via the Internet through a system called ASP, which means software on demand. Companies can go online and use the different software applications to help maintain their financial departments without drastically cutting into their IT budget. Furthermore, if a company has faulty software they can determinate the service or uninstall the software immediately. It is basically a pay as you go approach.
Even Wall Street is investing in the ASP systems. The Wall Street Sytems invested millions in upgrading the infrastructure and enhancing its capabilities. The ASP system has over 30 custormes including Adidas and other MNC. Moreover, ASP providers are experimenting with offering separate application model. It allows companies to use many different hardware resources but it is shared among many companies. The problem that arises is that not all of the applications differ among the ASP. It is hard to maintain the connectivity between the applications. SunGrad and AvantGrade found a solution called eTreasury eXchange (eTX). eTX allows for the connectivity between banks and corporations uses the software. The problem that I see is security. How are they going to maintain a secure connection between banks and corporations using the software? Banks and Companies are dealing with trillions and trillions of dollars everyday and someone could hack the system and steal pennies here and their right under the ASP systems nose.

Fatou Coulibaly - "Paving The Way For E-Invoices"

Paving The Way For E-Invoices
Adam Rombel. Global Finance. New York: Mar 2007. Vol. 21, Iss. 3; pg. 21, 2 pgs
http://proquest.umi.com.proxyau.wrlc.org/pqdweb?did=1240499851&sid=5&Fmt=4&clientId=31806&RQT=309&VName=PQD

This article mainly discusses the increasing introduction and adoption of e-invoicing by companies not only the United States, but also worldwide, with the example of Europe. According the Entrepreneur.com’s definition of invoices, they represent “an itemized list of goods shipped or services rendered, stating quantities, prices, fees, shipping charges, etc. Also known as a bill."

More specifically, the article refers to the use of corporate Electronic Invoice Presentment and Payment (also called EIPP) which constitutes the e-invoicing system that mostly large companies are acquiring. If the introduction of EIPP was not as successful and rapid as it was thought to be at the beginning (because “businesses still receive more than four of five invoices in paper format and make two-thirds of their payments with a check.”), this trend is changing now. I believe more companies (large businesses) are making use of EIPP because of the various advantages it offers compared to traditional invoicing. It is said to have become an indispensable tool because “companies are using e-invoicing to obtain reductions in labor, paper, printing, postage, delivery and other costs associated with manually processing invoices.” These companies are also benefiting of more efficient payment routing and approval processes as well as high-speed dispute resolution with e-invoicing. There has been some evidence that they significantly reduced their processing costs, and invoice-related expenses with EIPP (these expenses can result for instance from trying to reissue misdirected, misplaced or lost invoices.)

I strongly agree that due to the fact that there are a lot of companies that are better managing their cash flows, with greater amount of dollars (millions) transactions through account payables, providers of business-to-business e-invoicing services are noticing the growing number of buyers and suppliers. For example, the specific OBIO e-invoicing network states that it has 80 buyers and 40,000 suppliers in both of its headquarters in Europe (London) and the US (San Francisco). Other networks such as OB10 provide e-invoicing technology to great companies such as HP, Procter & Gamble, Johnson & Johnson, and General Motors just to name a few, that generate substantial annual revenues averaging $800 million. The article mentions couple of more networks of technology vendors such Ariba, Pleasanton, and Bottomline Technologies that are all considerably increasing their number of suppliers and business-to-business transactions, and thus their revenues because of the growing e-invoicing’s success.

Since it is more economical to receive invoices electronically, I believe it shouldn’t be only large companies that can use e-invoicing (even if they have been until now the primary and single users). I find that it would be very beneficial for smaller -to mid-sized corporations as well to acquire the EIPP features. These companies express apparently barriers such as the lack of financial abilities to afford such a technology. But hopefully with the use of Accountis company’s ebPrinter which is the Electronic Business Printer, it is certain that “EIPP is gradually making its way down to smaller firms” according to Thayer Stewart, the Vice President of Marketing and Business Development at OBIO.

Ajai Murali - Chinese Banks Head for the US

Source:

Tachang, Chi Chu. "Chinese Banks Head for the US." Businessweek 12 Nov. 2007: 28-30.

UCBH Holdings is a San Francisco based bank that servers a large Chinese-American customer base. Recently, it needed $205 million for an acquisition, so it teamed up with Minsheng Bank in China, which took up 9.9% ownership in UCBH. Chinese banks are starting to eye the US for expansion and an increased global presence as a provider of various financial services. It is an interesting phenomenon, especially since China only joined the World Trade Organization in 2001. The CEO of Minsheng Bank says it is eyeing the US simply because it’s cheaper. It’s almost a reverse outsource, if you will. Soon after Minsheng’s deal, Citic Group based in China bought 6% ownership in Bear Sterns.

US Regulators face a problem with the interest of Chinese banks to buy into US banks. While it encourages investments from overseas and it must approve all deals involving ownership greater than 5%, it is facing a different situation with Chinese banks. This is because of the regulatory environment that existed in China until very recently, and still exists in some cases. The regulatory environment is known to be lax and tends to engage in more corrupt practices than any US bank. The US regulators are supposed to be welcome to cross-border deals, and are certainly very involved when a US bank has interest in a Chinese bank. Eight of the twenty five largest bank-holding companies in the US by total deposits are owned by foreign companies, as we see global cross-border investments increasing.

China has been doing a lot of cleanup work to help privatize a lot of its institutions including banks as they moved away from centralized institutions. As Chinese banks become more knowledgeable, they are buying into countries in which their existing customers did business. Then, they are moving to areas where they are comfortable—such as Minssheng’s comfort with the Chinse-American management team at UCBH. China’s 3 top banks rank among the top 20 in the world as far as market value. Their average price to earnings ratio is 41.3, whereas US banks average 10.6. Investments in the US are brave ones, since the recent subprime credit problems as well as home loan defaults have made it a more turbulent market than usual. It helps the Chinese banks that the US dollar is as weak as it is, but not as much as the article reports because I believe the Chinese Yuan is pegged to the US dollar. It is important that the US change its attitude towards business practices in China, since China’s business practices have entirely changed. Each country must be given same treatment when it comes to investing in America.

This article is interesting because it plays a reverse role on the famous outsourcing to China trend. The Chinese banks are taking advantage of a vulnerable US market and US dollar, and will continue to invest here as long as the Fed continues to approve. It is also interesting that Chinese banks are looking to become full service financial centers, as we have seen transformations of big firms such as Schwab and Merill to try to become a full financial powerhouse as well. Foreign competition is healthy, but ultimately the chief banking regulator of China reports that if the US continues to cooperate, China will raise its caps on foreign investment. It will be interesting to see how this all plays out, and how different communication, currency, and management barriers are overcome. Of course, the IT is all there and there will be a technology transfer as more Chinese banks invest in the US.

Michael Moronta- The Importance of IT security

INTERNET LAW - Data Privacy and Data Security: The New Imperative

http://www.ibls.com/internet_law_news_portal_view.aspx?s=latestnews&id=1904

This article stresses the importance of IT in the survival and flourishing of a company. IT over recent years has ruled the business world, and it makes businesses a lot more efficient and integrated. Companies that continue to evolve and make advances use IT as a competitive advantage, while those that do not, see their way slowly going out of business. This electronic information which contains the companies backbone (assets, trademarks, key information etc.) is essential. If this information were to get in the wrong hands it could be devastating to a company. Some of the consequences may include damage of reputation, lawsuits, and severe financial penalties.

The importance of IT to a company makes it even more crucial that a company protect there electronic information from those who may try to sabotage it. This may include employees, hackers, or competitors. I believe that in order for company to survive in a competitive business world they must set aside a hefty budget just for the improvement and monitoring of IT systems in the business. Monitoring an IT system from potential attacks has grown to be a very difficult task than in past times. The systems must be monitored on a daily basis insuring the confidentiality of a companies information.

The article states that a regular auditing committee will not be effective in surveillancing the IT systems because their strength is in financial statements. I agree with the article in that the best method to monitor systems is creating a committee that comprises of specialized technology personnel with limited oversight by an auditing committee. The personnel in the specialized technology committee will be the best suited for the task because they understand the systems and know how to work with them. The difficulty lies in selecting individuals that are trustworthy. This proves to be not as easy as it sounds because many people are driven to improve their own situations.

Nonetheless, IT is a critical part of a company. Its constant evolution and monitoring are the keys to success in a company. Many companies that have failed to do this have suffered dearly. For instance, ChoicePoint suffered a 15-20 million dollar loss in sales because of a data breach. Companies must make IT a priority if they do not wish to suffer the same fate.

Jessica Davison "Offshoring Fortunes Fluctuating" & "Offshoring in Reverse"

Kenney, Brad. "Offshoring in Reverse." Industry Week Vol. 256. Issue 10. Oct 2007 41-42. 9 Nov 2007 .

Murray, James. "Offshoring Fortunes Fluctuating." IT Week. 7 May 2007 19. 9 Nov 2007 .

I chose two related articles in order to look at the influence of currency fluctuations on IT firms. Specifically, these articles examined the business model of Indian IT firms and how recent U.S. currency fluctuations have the potential to change Indian IT firms’ business models. These changes may lead to dramatic changes for U.S. firms as well.

“Offshoring in Reverse” discussed that Indian IT firms are starting to hire U.S. firms in order to capture more U.S. market share. This additional investment is worth it to these firms to gain market share. “Offshoring fortunes fluctuating” pointed out that one of the major reasons for this change is the weakening dollar and the relative appreciation of the Indian rupee. As of May 2007, the rupee had increased in value by 10% relative to the dollar; the most dramatic improvement ever. The article stated that if the trend continued, U.S. firms would likely pay the price because Indian firms would increase their prices in order to maintain their 25% profit margins.

These articles also discussed that since most of Indian firm’s expenses are in rupees, but now those expenses are increasing since the rupee is appreciating; the additional expense of hiring U.S. IT professionals is declining for these Indian firms. To me this demonstrated the important role that foreign exchange markets play in business. Prior to the weakening dollar, the reason that Indian firms were able to be so profitable was because the rupee was valued so low, so expenses were less; yet the Indian firms were billing in dollars which were worth substantially more. I never really thought about how Indian IT firms were so profitable because only the lower labor costs are what are publicized.

I thought these two articles were extremely interesting. Lately on the news it seems that every day the dollar is weakening in value. Although it is fairly obvious that this has tremendous implications for the U.S., I did not ever think about the connection to IT. In this respect, I thought these articles were interesting because it now appears that Indian IT firms that are used by U.S. companies are now hiring more and more U.S. IT professionals. It seems to me that if the U.S. companies were more aware of this trend, they might shy away from outsourcing this function to the middle man (in this case the Indian firms) and just hire U.S. IT professionals directly. However, either way this trend seems to present a good opportunity for U.S. IT professionals since they are now being sought after instead of being replaced by other less expensive professionals from abroad.

I also thought that these articles were interesting because both discussed that this trend is not just important for the U.S. but for other countries as well. One example given was the importance this has for the U.K. and Europe. Since the value of the pound and Euro are still strong, Indian IT prices have not risen; however, European countries have noticed the trend that is emerging in the U.S. and is on alert for future currency fluctuations that could affect them directly.

It also struck me as very interesting that the Indian IT firms were not willing to cut into their bottom lines even though this industry averages a 25% profit margin in India. It made me wonder if these companies are basing their business model off of past trends of U.S. companies. I kept thinking about Exxon Mobil’s profits last year – the highest ever despite record oil prices. Perhaps the Indian IT firms have observed that record profitability can still be realized even when the costs are passed on to customers.