Future Impact of Artificial Intelligence (AI)

Wikipedia:

In computer science, artificial intelligence (AI), sometimes called machine intelligence, is intelligence demonstrated by machines, in contrast to the natural intelligence displayed by humans

While artificial intelligence (AI) has long been considered a potentially disruptive technology, it is beginning to evolve into a concept that could actually turn the entire value chain of the financial sector upside down. This change is a consequence of the enormous potential of artificial intelligence. AI technologies are increasingly being used to bring new products to the consumer, to improve existing solutions, to increase the operational efficiency of business processes, and to explore new discoveries that lead to innovative business ideas.

Artificial intelligence does not describe a single technology, but the combination of different technological developments. These include text generation and machine processing of natural language, so-called automatic reasoning, pre-habilitation methods, machine learning, autonomous and intelligent agents. In search of perfect solutions, they have all been brought together to what we now call artificial intelligence. They describe abilities that resemble or even surpass those of a human being. But despite all these advantages, not all aspects of artificial intelligence have reached the same level of maturity. Some of them need decades of development, including so-called ” strong artificial intelligence” That could eventually enable machines to mimic the intelligence, plasticity, and understanding of the human brain.

The Effect of Machine Learning in Finance

Machine learning in finance industry is based on different fraction use cases. Generally speaking, machine learning in industry is lesser than the outsiders’ imagination. Long before the term machine learning was not that pronounced in industry. Then one would that means of analyzing data and making predictions would be complex. But not so, because there are direct solutions to finance problems that doesn’t require formula.
Some examples of machine learning in trading community are given below:

SIGNAL GENERATION AND TESTING: The term ‘signal’ depicts the ultimate goal of trading which is to creates trade. To create signal from past data, machine learning methods are important. Particularly, fine-tuning the approaches in machine learning areas around validation and importance of statistical testing are very germane. The difference between success and failure is a result of getting the important part wrong. Linear regression can be used to make actual prediction.

FEATURE ENGINEERING: Learning not supervise is not good for trading because there’s a need for feedback which is the link between profits and signals. The features can also be designed singly using any tools of choice. Introducing external data, for instance, satellite data or economist model for large trading and make use of complicated tools to feed the results into simple trading strategy is the work of good strategies.
BORROWING FROM SPEECH RECOGNITION METHODS: Here from the past one can predict the future. NLP and other similar areas of machine learning approaches have been found beneficial in trading space.
Option pricing, High frequency trading execution, portfolio strategy, management of risk do not rely on machine learning. Conclusively, machine learning is relevant in the area of finance, but not up to what people think, also the arms that use it depends on the modern machine learning than on specific models peculiar to academia.
One of the tools use to make predictions in trade by quantitative traders is machine learning, which is of great advantage in stock market. A fund manager or a trader question would be how to make use of this tool to create more alpha. In quant firms and algorithm, machine learning has been the talk of many in recent years.

MACHINE LEARNING GAINS POPULARITY IN ALGORITHMIC TRADING
Programming languages like C++ , python, R, etc. can be useful in applying machine learning techniques to trading. Machine learning packages are built within organization by firms that make it available for the users freely.
Machine learning packages has shoot up recently this has immensely enhanced access to various techniques in machine learning and also meeting the trading needs.

SOURCE:
How algorithm works is one of the basis of classifying it. One example of algorithm is ML algorithms which are classifying depending on their mode of work. For instance, to construct a model of decisions, decision tree algorithms are used. To find relationship between variables, regression algorithms are employed.
Some of these algorithms are listed here;
1. Linear Regression
2. Support Vector Machine (SVM)
3. Deep learning
4. Random Forests (RM)
5. K-Nearest Neighbor (kNN)
6. Logistic Regression
7. Classification and Regression Tree (CART)

The examples of ML algorithms given above are employed by trading firms for different purposes. Among which include;

1.To find optimal inputs to a strategy,
2. Using huge data sets historical market behavior can be analyzed,
3. It is also beneficial in making trade predictions, etc.

EXAMPLES OF MACHINE LEARNING:
RESOURCES TO STUDY MACHINE LEARNING
In the world today, one must keep on updating oneself with new emerging technology. Machine learning offers opportunity to full time traders to improve their knowledge. Course in machine learning are present in some reputable university across the world.

OTHER RESAERCH AREAS
Various markets, for example forex market make use of machine learning techniques. Knowledge of programming, technical analysis, basic statistics, etc. are also useful to any traders that wants to improve their trades with machine learning technique.

MACHINE LEARNING COMPETITIONS
This machine learning competition is targeted at improving traders’ knowledge. There are many site implicated in hosting ML competition. This competition even though does not directly target the application of ML in trading, exposes different ML problems through the competitions. Thus expanding participator ML knowledge.
Some of the examples of ML hosting sites are:
1. CrowdAnalytics
2. kaggle
3. NUMERAI
4. Topcoder, etc.

FUNDS USING MACHINE LEARNING TECHNIQUES
Machine learning are used for trading in established funds like Citadel, Shaw, Medallion funds and so on. The impact of ML techniques in trading and is unclear to people. So also is the role of machine learning strategies in funds overall effect.

FUTURE OF MACHINE LEARNING IN TRADING.
Recently, automated trading has been increased by advancement in technology and electronic trading. Globally, machine learning has been adopted by big and small firms.
At this time better understanding of machine learning is paramount to traders so as to maintain their productivity in the world of trade. There’s also new developments in machine learning support by hard ware.

Future Impact of Artificial Intelligence and Machine Learning in Finance

However, there are already tasks that have hitherto only been attributed to the human mind that is already performed by artificial intelligence – in a process that reflects the replacement of human labor with industrial machinery. The financial sector is a good example to show how AI is already working on different levels:
– Improving customer experience and customer relationships through more human interaction with chatbots, virtual agents, and intelligent systems that can communicate and communicate with each other based on text generation of natural language machine processing
– Through a clearly demand-oriented offer of services such as Robo-Advisors, individualized products and the registration of new customers completely on an online basis, based on machine learning – By automating internal business processes, including mechanical and cognitive processes, by replicating human cognitive abilities, such as finding and understanding the meaning in a variety of documents, recognizing hidden patterns, and creating complex systems
– Through the full effective use of financial data, where machine learning can help uncover abnormalities, combat white-collar crime, and automate processes in an infinite array of financial product specifications. In which areas can artificial intelligence influence the financial business the most? The financial sector is currently being shaped by artificial intelligence. Technology has shown that with its disruptive nature, it actually has the potential to change financial processes. This change holds many opportunities and possibilities: pure research projects result in the actual change of the most important business processes.

Artificial intelligence future

What we still have not seen is the true potential of artificial intelligence. Over the next two to three years, we will witness a huge increase in processes and applications. Technologies are already maturing to challenge executives in which areas they want to use them to change their business processes. This can succeed, for example, by enhancing the customer experience and improving customer relationships by offering new services and automating tasks that require human, cognitive skills and exploring new areas to expose new and hidden knowledge. It is also important to distinguish between different areas: There are areas where AI is already well developed and where quick, direct successes are achieved. And there are other areas that require a more exploratory approach because the risks are higher, but there is potential for promising disruptive outcomes. require cognitive skills and exploring new areas to expose new and hidden knowledge. It is also important to distinguish between different areas: There are areas where AI is already well developed and where quick, direct successes are achieved. And there are other areas that require a more exploratory approach because the risks are higher, but there is potential for promising disruptive outcomes. require cognitive skills and exploring new areas to expose new and hidden knowledge. It is also important to distinguish between different areas:

There are areas where AI is already well developed and where quick, direct successes are achieved. And there are other areas that require a more exploratory approach because the risks are higher, but there is potential for promising disruptive outcomes. Apart from that, the management team must also carefully plan the implementation strategy. In order to do so, it can rely on the talents in its own company, attract external professionals, collaborate with FinTechs, purchase black box products, or provide advisory services. All of these possibilities can also be done in collaboration with internal analysis or innovation teams, by using them as playgrounds or by creating prototypes on a pilot project basis. One example is the GFT Innovation Lab, where FinTechs, technology startups, and financial institutions work together to explore and design different AI applications – both at the business and some level of technology – before integrating them into their enterprise. In addition, executives should think about and identify technology platforms that best fit their business and strategy. You can choose either internal or external developers to build core capabilities, use an open source infrastructure (such as Hadoop or TensorFlow), outsource data products and software as a service to FinTechs, or access cloud-based solutions (such as Amazon), IBM Watson, Google Cloud Platform and Microsoft Azure). Finally, those in charge should begin this process by identifying areas where artificial intelligence can be implemented to change business processes.

A strong change in human resources through artificial intelligence

The artificial intelligence will not completely replace the present – human – personnel, but it will greatly change the entire human resources. A different focus will bring unprecedented levels of collaboration between man and machine. Every disruptive technology also brings with it a wave of previously unknown jobs and tasks. As in the late 1980s, when the advent of computers cost thousands of jobs, we are once again facing a shift away from teams to more demanding jobs, such as tasks that require very good customer service. In addition, AI algorithms must be constantly reviewed by professional teams supported by more advanced AI technologies. In short, artificial intelligence technologies can be used to automate and industrialize the very intellectual tasks previously thought only of the human brain. That’s why they have the potential to completely revolutionize the financial services industry. All this is possible, no matter the difficulties, risks and unrealistic, short-lived expectations that each new technology brings with it.

Alexander Hamilton is father of modern banking

Alexander Hamilton who was born in Charles Town, Nevis on January 11, 1755 was an American statesman, an influential interpreter who also promoted the Constitution of the USA and one of the founding fathers who also organized the nation’s financial systems. He led the funding of the Federal governments state debt and helped to establish the national bank which supported manufacturing and a strong army. He had a vision that led to the setting up of the tariff system and a trade relationship with Britain that is friendly. He also founded the Federalist Party, the New York Post, the USA Coast Guard. He was the secretary of the Treasury when George Washington was the President. Thomas Jefferson opposed him and argued for smaller government and agrarianism. A Strong Central Government that was led by an executive branch that was very vigorous was organized by him.

Alexander Hamilton Father of American Banking

Alexander Hamilton was not a U.S. president but he became a founding father of the USA even though he was born out of wedlock and he was taken in by a very rich businessman after he became an orphan as a child. As a teen he pursued his education and in 1777 he was in the American army when the American Revolutionary War was fought and after the war, he became a senior aide to George Washington and assisted with the leading of the new Continental Army. He was the person who represented New York in the Congress of the Confederation.

Hamilton was a trusted member of President Washington’s first Cabinet as he led the Treasury Department, he helped to implement the Whiskey Tax that was very controversial after the tariff on imports was not able to fund the National debt, the government backed Bank of America and to assume state debt. The bankers and businessmen became members of the Federalist party after he mobilized them and other friends of a network.
The Jay Treaty that he spearheaded in 1794 is seen as a part of the history of the two-party system that is still alive and well in the US today. The party that he was a part of dominated politics for many years until Jefferson’s Democratic-Republican Party won the election in 1800.

Hamilton was instrumental in ending the International slave trade, he actively sought to change laws and campaigned against Vice President Burr in 1804 as he tried to get elected to be the governor for New York State. Burr was very offended and a duel between the two men left Hamilton badly hurt and he died the following day.
He began developing an interest in life in other places away from the small island where he lived after he started reading many books and he liked writing as well. It was a letter that he wrote to his father about a hurricane that had badly damaged the island that he lived on, that was seen by a very influential Journalist that caused him to be sent to further his education in North America. He wrote about God’s wrath pouring out on the island because of the people’s love for vanity. The journalist thought his letter was a Sermon. It was very impressive, and persons were amazed that young man who had not attended university as yet could have written such a letter.

Beekman and Cruger was an import-export firm, where Hamilton was employed as a clerk in his early years, they traded with New York and New England. He proved to be very capable as a trader, he was left to manage the firm 1771 when his boss went on a sea trip.
He spent time with Hercules Mulligan, who had a brother who did trading in 1772, after he arrived in Boston on a ship before he went to New York. Mulligan assisted him in selling cargo and he earned enough money to pay for his College tuition. It was not long after met William Livingston who was a revolutionary and leading intellectual. He was influenced by Livingston as he stayed with him at his Liberty Hall.

Hamilton was instrumental in ending the International slave trade, he actively sought to change laws and campaigned against Vice President Burr in 1804 as he tried to get elected to be the governor for New York State. Burr was very offended and a duel between the two men left Hamilton badly hurt and he died the following day.
On July 12, 1804 after he resigned and practiced law for a while in 1795 and he also founded the Bank Of New York.

Short Term Finance Examples

In order to have a successful business there needs to be a constant flow for any type of working capital. This is a vital component considering that outflow is going to be a part of each cycle; raw materials must be purchased; wages and salaries need to paid; equipment must be serviced; then funds are necessary for advertising, marketing and other overhead costs as well as the needed reserves until a customer makes a payment. The lifeline of any business is going to be working capital.

One of the biggest questions asked is just “how does a company get those funds for working capital?”. The answer is financing, but there are two types – long-term and short-term financing.

Short-Term Financing
Short-term financing is when a company needs finances for only a short time, which is often under a year. This may also be called financing for working capital.

This can be needed due to seasonal business patterns, cash flows that are uneven, etc. However, there are times when it will be used in order to finance accounts receivable, inventory, etc. Yet, only single orders for specific business will be financed.

Sources Types of Short-Term Finance

There is an understanding about why this type of financing is needed. There are different sources to get this type of financing for companies. Each type will have a different type of characteristic and may be used for various situations. Below some of these types discussed:

Examples of short term sources of finance

Trade Credit
This is a type of credit that will be extended by accounts payable. This can be often be split into two types which is paid and free. After a certain amount of days based on the payment terms, suppliers will charge interest for payment delays. If the period happens to be free, once it is delayed it becomes paid.
Free trade credit is what should be used as often as needed, simply due to it being free. How much can this cost? It actually depends buyer’s credit, payment history, business, etc. The higher that the rating is, then this credit will be higher.
Paid trade credit happens to be considered to be short-term, but it should only be used whenever other types of financing are not available and the reason is due to high interest costs that come with it.

Working/Short-term Capital Loans
You can get a working capital loan from a financial institution or bank. A bank will provide this type of loan after the business has been studied, and the cycle of working capital as well as the track record are looked at. Once it has been determined that it is available, then these loans will have to have payments made in small payments or it is paid in full. This will be based on loan terms. It is best that these loans only be used when there is a need permanent capital.

Line of Credit for Business
This is the form of financing that is best for temporary capital. Therefore, when you use this type, a set amount will be approved by a financial institution or bank. Inside of credit line, a business is able to make a payment and then continuously deposit once the customer payment has made their payment. It is similar to using revolving credit. This means that the interest is only for what has been used, but not on what for approved amounts. A business will be able to deposit any unused amount in order keep interest low. This is seen to be the best way to be cost effective when it comes to financing.
Invoice Discounting
This another type of financing where any received invoices are able to be discounted through banks, financial institutions or a third-party. This means that banks will pay the company when you discount the invoiced and then it will collect payment from the customer whenever the invoice is due.

Factoring
This type of financing is almost similar to discounting when an account would be sold to the bank at a lower price than the realizable value for the account. This particular type of purchase is called a factor. A person can get these services at a financial institution and bank. There are various forms of factoring that may be used as well such as recourse, non-recourse, etc.
Another great thing to know is that banks will a great source to gain working capital for short-term time periods.

Overdraft Agreements
Whenever a business goes into overdraft agreements with banks, a bank will let the company borrow up to a set amount without there being any other discussion needed. However, a bank could ask for a type of security and this could be collateral, or it could be interest with variable rates on any outstanding amount. However, if a company believes that they can repay it quickly, then overdraft agreements will be a useful tool for financing. This is a form that is often used by many businesses will go to.

Financing on Accounts Receivable
There are a lot of non-banking and banking institutions that will provide a way to provide financing to any accounts receivable. This means that the institution will purchase the bill and then collect amounts from customers. A company that has large credit terms can continue doing business and not needing to wait to get full payment from a customer.

Customer Advances
Many businesses that state you have to pay before any services are provided or goods are sold. This is a good thing, especially if it is a large order that could take a bit to fulfill. This also helps to make sure that there are funds that can be channeled into operations while the orders are being taken care of.

Installments
Some businesses, especially the ones that sell home appliances like stoves, refrigerators, televisions; businesses that sell electronics like computers, radios, etc., and the ones that sell cars may allow a customer to pay off their bill in installments. Because most items are something that is now considered to be an essential, the customer may not be from a wealthy background and be able to afford an upfront cost. If that is the case, then there is no need to wait for large lump sums, the business will let the customer make small monthly payments until it is paid off. This helps to make sure that there are regular funds coming in and it is not choking up accounts receivable.

Long-term Financing
One thing that many business owners need to know is that when a company relies on short-term amounts to be able to the needs of working capital, it will not always be the best thing, especially for an industry where it actually manufactures the product, which takes a bit of time to do like refrigerators, vehicles, computers, and aircrafts. These companies are the ones that need to have working capital that will be able to be used for extended periods of time, and so they are the ones that often lean towards long term financing.

Long-term Loans
There are some businesses that will just decide that they rather get a bank loan with long-term repayment options. This will allow the company to have working capital that will be needed for at least 3 years or more.
Retain Profits
Instead of a business providing shareholders with dividend payments or even investing in something new, there are some companies that will retain a certain amount of the profits that they make so that it can be used to create working capital. The businesses do this so that there is nothing to worry about taking out a loan, paying interest, taking a loss for discounted invoices, and they are able to be self-sufficient when it comes to the financing of the company.

Debentures and Issue Equities
There are going to be some cases when a company is extremely low on funds, or whenever a business decides to invest in a new venture to expand, the business could decide that they are going to issue bonds or debentures to the public, then there are cases where they could issue equity stock. This is only done by large conglomerates and it is only really used whenever a necessity for a lot of funds at one time is required.
A company cannot always rely on certain limited sources in order to get working capital. Multiple options need to be used and the needs of the company will always need to be evaluated. This can be done using an analysis of financial ratios and financial statements. The channel where working capital comes from needs to be selected carefully as it will be an ongoing process. Different types are various points in time may be more appropriate. The whole thing is for a company to select the right type of alternative based on the situation that they may have at that particular moment in time. Hopefully, this guide shines a light on what can be done by a company when it comes to meeting the needs of working capital.