Presently, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney’s annual FX Poll, volumes grew a further 41% between 2007 and 2008.

The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world’s main financial markets and stock markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

• $1.005 trillion in spot transactions
• $362 billion in outright forwards
• $1.714 trillion in foreign exchange swaps
• $129 billion estimated gaps in reporting

Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to “traditional” turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

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Microsoft notes in the application that the end user could end up paying more for the computer, compared with the one-off cost entailed in the existing PC business model, but argues the user would benefit by having a PC with an extended “useful life”.

“A computer with scalable performance level components and selectable software and service options has a user interface that allows individual performance levels to be selected,” reads the patent application’s abstract.

“The scalable performance level components may include a processor, memory, graphics controller, etc. Software and services may include word processing, email, browsing, database access, etc. To support a pay-per-use business model, each selectable item may have a cost associated with it, allowing a user to pay for the services actually selected and that presumably correspond to the task or tasks being performed,” the abstract continues.

Integral to Microsoft’s vision is a security module, embedded in the PC, that would effectively lock the PC to a certain supplier.

“The metering agents and specific elements of the security module… allow an underwriter in the supply chain to confidently supply a computer at little or no upfront cost to a user or business, aware that their investment is protected and that the scalable performance capabilities generate revenue commensurate with actual performance level settings and usage,” the application reads.

‘A more granular approach’
According to the application, the issue with the existing PC business model is that it “requires more or less a one chance at the consumer kind of mentality, where elasticity curves are based on the pressure to maximize profits on a one-time-sale, one-shot-at-the-consumer mentality”.

Microsoft’s proposed model, on the other hand, could “allow a more granular approach to hardware and software sales”, the application states, adding that the user “may be able to select a level of performance related to processor, memory, graphics power, etc that is driven not by a lifetime maximum requirement but rather by the need of the moment”.

“When the need is browsing, a low level of performance may be used and, when network-based interactive gaming is the need of the moment, the highest available performance may be made available to the user,” the document reads. “Because the user only pays for the performance level of the moment, the user may see no reason to not acquire a device with a high degree of functionality, in terms of both hardware and software, and experiment with a usage level that suits different performance requirements.”

By way of example, the application posits a situation involving three “bundles” of applications and performance: office, gaming and browsing.

“The office bundle may include word-processing and spreadsheet applications, medium graphics performance and two of three processor cores,” the document reads. “The gaming bundle may include no productivity applications but may include 3D graphics support and three of three processor cores. The browsing bundle may include no productivity applications, medium graphics performance and high-speed network interface.”

“Charging for the various bundles may be by bundle and by duration. For example, the office bundle may be $1.00 [68 pence] per hour, the gaming bundle may be $1.25 per hour and the browsing bundle may be $0.80 per hour. The usage charges may be abstracted to ‘units/hour’ to make currency conversions simpler. Alternatively, a bundle may incur a one-time charge that is operable until changed or for a fixed-usage period,” the document reads.

Microsoft’s patent application does acknowledge that a per-use model of computing would probably increase the cost of ownership over the PC’s lifetime. The company argues in its application, however, that “the payments can be deferred and the user can extend the useful life of the computer beyond that of the one-time purchase machine”.

The document suggests that “both users and suppliers benefit from this new business model” because “the user is able to migrate the performance level of the computer as needs change over time, while the supplier can develop a revenue stream business that may actually have higher value than the one-time purchase model currently practiced”.

“Rather than suffering through less-than-adequate performance for a significant portion of the life of a computer, a user can increase performance level over time, at a slight premium of payments,” the application reads. “When the performance level finally reaches its maximum and still better performance is required, then the user may upgrade to a new computer, running at a relatively low performance level, probably with little or no change in the cost of use.”

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Before anyone had the chance to soak in the early-year rally, a slew of big companies have come along with earnings warnings to temper the enthusiasm.

The warnings—from giants Alcoa, Intel and Time Warner—were a big factor in the selloff in stocks on Wednesday. Moreover, these early warnings are expected to be just the first few rumbles in an avalanche of dour outlooks to come. “It’s going to be ugly,” said Tom Higgins, chief economist at Payden & Rygel in Los Angeles. “We’re certainly not through the thick of it…I think you’re going to see a horrible earnings season.”

Analysts expect consumer-sensitive areas such as retail and parts of technology to be among the hardest hit as rising unemployment squelches consumer spending and hurts revenue and earnings. Even President-Elect Obama’s plan for a massive stimulus package isn’t expected to have much impact until later this year.

“While we do anticipate that monetary policy will gain traction over the course of 2009, I don’t think you’ll see any impact on consumer spending and business spending that would make optimistic about equity prices at this point,” says Higgins, who sees consumer spending rebounding perhaps in the third or fourth quarter this year.

While there’s hopes for a turnaround later this year, Higgins says the economy has more difficult times to weather before that happens.

“Analysts have been way too optimistic all the way up to this point,” he adds. “After this quarter you may start to see where they’ll be playing catch-up to the downside…and maybe we’ll see more rational expectations for earnings. Right now I think we have more downside than upside on earnings.”

Here’s a snapshot of the warnings so far:

Media conglomerate Time Warner said Wednesday it expects to record a charge of about $25 billion in goodwill writedowns, leading to a loss in the fourth quarter. Microchip maker Intel said its fourth-quarter revenue was likely worse than expected due to weaker global demand for personal computers. The company said its quarterly revenue was likely about $8.2 billion, down 23 percent from a year earlier.

Aluminum giant and Dow component Alcoa said it would slash more than 15,000 jobs, halve capital spending and sell four businesses as it reduces aluminum production in the face of the global economic downturn. The company said it imposed a global salary and hiring freeze as it seeks to cope with what Chief Executive Officer Klaus Kleinfeld called “extraordinary times.”

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