Comprehensive Report on Finance

This comprehensive report on finance discusses the background of financial markets, capital allocation in domestic and international markets, evaluation of emerging economy, and challenges faced due to industrialization and trade policies.

Comprehensive Report on
Finance

Executive Summary
International finance, trade and various kind of investment option are available in present
time which support in making sufficient stability within the entire economy. The report below
summarize the background of financial market, Capital allocation in domestic economy and
international markets. In addition emerging economy and challenges faced by that economy is also
discussed.

Table of Contents
Executive Summary.........................................................................................................................2
INTRODUCTION...........................................................................................................................1
Background of financial markets.................................................................................................1
Capital allocation within domestic economy...............................................................................2
Capital allocation within international markets...........................................................................2
Evaluation of emerging economy................................................................................................4
Challenges faced due to industrialisation....................................................................................5
Evaluation of challenges that country faces due to industrialisation and trade policies..............6
CONCLUSION ...............................................................................................................................7
REFERENCERS .............................................................................................................................8

INTRODUCTION
In the modern business environment, every organisation needed particular amount of
funds and an effective system to manager these funds so that entire functioning is managed in
way to produce maximum benefits (Financial market, 2019). Finance is a wider concepts that is
related with the study of investment, money as well as instrument of finance. It is categorise into
three sections such as public finance which includes tax systems, government expenditures etc.
Corporate finance including managing of assets, liabilities, debts and revenue. Personal finance
include each business actions and practices, include planning, taxes, loan planning, investments
and pension schemes.
In this report, background of financial market, capital distribution in domestic and
international economy are discussed. In addition, evaluation of China and its current challenges
due to industrialisation and trade are also covered in this report.
Background of financial markets
Financial market have the main role to connect individual and companies together so that
proper flow of money can be maintained at specific place on particular time period. These
market provide the chances to make a legal and profitable investment into share or equities that
will increase the entire economy. There are various kind of securities which are exchanges
within financial market such as bond, share and other securities that are traded with the support
of regulators, brokers etc. The are divided into two areas such as debts and equity which are
discussed below:
 Equity financial market: This is related to the stock marketplace where securities
including share are traded at large level according to the requirements. Some of the
common example of equity market are NYSE and LSE which help the interested parties
to make a legal investment within most economical share that give favourable returns. In
this segment, equity stocks are exchanged between the entities where stock companies do
not participate (Bhandari and Javakhadze, 2017). The stock market entails a significant
risk as when the valuation of shares could be adjusted for different reasons.
 Debt financial market: It is related to the bond trading market where legal organisation
comes together in order to make an effective investment by giving specific loans on
which interest is earn. This business is known to become less volatile as the value of their
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shares may not shift, bond holders are those that have been paid the first unless the
corporation becomes liquidated as well as guaranteed interest is received toward the debt.
In addition to the threat, there is also a poor return on investment throughout this sector.
Capital allocation within domestic economy
The allocation of capital in a process of distributing funds by specific insinuations or
government within a specified domestic territory. In United Kingdom the government financial
sector, local money market and the share market assign capital. Assets are distributed in a
country by including micro and macro methods. In macro mode, by distributing the money, the
UK government and its agencies distribute the resources in the nation. At the micro level,
businesses offer their bonds and other assets that are subsequently exchanged throughout
domestically money market as well as the share market by which money is distributed. These are
discussed below:
Banking system
The authority that control and manage the allocation of capital in UK is central bank and
some of the common banking authorities are Financial conduct authority, Bank of England and
Prudential regulation authority (Bolton, Santos and Scheinkman, 2016). BoE develop monetary
policy that help in regulating and controlling flow of money and guide other bank to maintain a
minimum amount of liquidity.
Domestic money market
This sector is the place where citizens can save their earned cash and buy loans
throughout the national currency through financial firms. The domestic mutual fund would alter
the flow of funds because people's incomes would boost the money on the market as well as the
mortgages given will minimize the money in the stock market.
Stock markets
Financial markets are supportive to exchange instruments for stock and liabilities such as
stocks, bonds, preferred stock, securities etc. Definitions of the stock exchange include London
stock exchange (LSE) and AIM, that is a trading platform for small companies, throughout the
domestic nation.
Capital allocation within international markets
The distribution in international market is a wider concept that help in making
availability of funds to several companies and individual looking to invest in international
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investment. There are different laws and regulation which is needed to be followed at the time of
trading through international market that gives a better result in long term (Chuen, 2015). There
are number of markets which are included within international capital market that enables
countries and individual parties to make a valid investment in respective foreign market to get
the desired outcome. NYSE and SSE are some of the example of international capital market
which gives an opportunity to interested parties to make a meaningful investment into top
profitable securities to get the high return in future. There are several method which can be
adopted by the parties and companies of UK to make a suitable investment in international
market to boot the country economy. These are elaborated underneath:
Bond markets: This is the sort of marketplace where the participants are exchanging
securities. A nation's creditors will participate in securities for a global economy that are both
governmental and semi-governmental.
Commercial banks: This is related to the financial bodi9es that are responsible for
accepting and depositing the loans and mortgage requirements to the respective parties. All types
of investor can make a deposit of subsequent amount as a saving in commercial bank and are
liable to earn interest on agreed interest rate (Fabozzi, 2018). As well as loans can also taken by
the foreign parties or companies from these banks thus how the money has been allocated in
international economies. These are the ways in which commercial fulfil the requirements of
capital in both short and long term period. Such as by saving deposited in bank short term capital
requirements can be fulfilled and by acquiring loans longer period of capital requirements is
completed.
Foreign exchange markets: It is a form of market that performs currency trading. Buying
and selling foreign currencies while using the method of currency exchange. It is the most
profitable way to allocate resources in the global economy because it is heavily liquidated. The
exchange rates do not hold any value, so stakeholders are able to divest foreign currency when
they want.
Derivatives: It most volatile market and similar to ordinary stock exchange. Here in this
market along with shares, options (call and put), futures and other this type of instruments. This
market also allow hedging transaction and other speculative trading. UK investors, even if they
are small investors or associations, will invest in prospects/futures and options of foreign-based
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companies. This format of allocation of capital is extremely profitable yet also extremely risky in
the global economy as futures derivative prices are undetermined and speculative in trading.
Global stock markets: It is the stock exchange through which national country
shareholders will spend foreign firms by purchasing their shares like bonds. This is deemed the
most efficient type of allocation of capital, since there is a significant probability of capital
multiplication (Gopinath and et.al., 2017).
Non-banking financial institutions: These involves corporations which are engaged in
providing financial services. Such organizations are insurance companies, venture investors, as
well as other pawnshops n which people could invest in to distribute their funds to international
economy. These companies collects funds from individuals and group of investors, and circulate
them in country's economy and infrastructure.
All these discussed markets are key means by which capital/funds can be easily
circulated or allocated in global economic structure.
Evaluation of emerging economy
Emerging market economy or EME implies to economy of a nation having low or middle
per capital earning/income and shifting towards becoming a significantly developed economy.
Emerging economies are evolving from a regulated market environment to an international
market system as economic reforms initiatives are being created. These kind of economies keep
a vital risk for market or financial investors since these are not properly stable yet or proven. For
study purpose, China, an emerging economy, is selected. China is a developing country as well
as most popularised emerging economy with highest population in world. There are several
elements in China economy which play a significant role in overall economical growth.
Following is an evaluation of China's economy while discussing such factors, as follows:
Agriculture
In year 2011, agricultural sector in China has contributed approximately 9.25% in
country's overall GDP that is significantly increased during year2012 and reached to around
9.40%. Also as per current performance and government aids in this sectors indicating that this
sector will grow continuously (China: distribution of gross domestic product (GDP) across
economic sectors from 2008 to 2018, 2018).
Services (IT, finance, insurance, business services, personal services etc.)
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Due to foreign companies interest in china's market, service sector is also growing
rapidly. During year2017, China's service sector has been reached to approx51.9 % which further
increased to around52.2 % during 2018 (China: distribution of gross domestic product (GDP)
across economic sectors from 2008 to 2018, 2018).
Production/Manufacturing
This sector is crucial part of China's economy as it is main sector which may open doors
towards becoming a developed nation. This sector's occupied approx40.5 % portion in China's
GDP during year 2017 which further increased to about 40.7% during year 2018 with minor
change. Now this growth may be negative due to continuous US-China trade war (China:
distribution of gross domestic product (GDP) across economic sectors from 2008 to 2018,
2018).
Inflation
Inflation factor directly affects overall economy and GDP of China. Inflation rate (%) in
year2018 was appropriately 2.07% while in year 2017 it was just 0.48%, this major increment in
inflation rate is due to heavy tariffs resulted from US China trade war (China inflation rate,
2019).
Evaluation of challenges that country faces due to industrialisation and trade policies
In modern time the procedure of implementing chemical, mechanical and electrical
concepts and methods in order to reorganise the manufacture of inanimate energy source is
known as industrialisation. This have completely change the working circumstance of
developing economy as everyone wants the best results therefore keeps on updating their system
and structure to meet the results. Trade policy establishes criteria, objectives regulations
applicable to country-to-country trade links. Such initiatives are country-specific and are
developed by their public officials. Their goal is to increase the global trade of the country. Trade
policy for a nation involves importing and exporting taxes, examination rules, tariffs and
regulations. Thus due to every changing industrial norms and strict rule and regulation of trade
have been impacting choose company. China being a developing nation mainly emphasises on
enhancing Industrialization within nation in order to take advantages of foreign trade and
investment (Linnerooth-Bayer and Hochrainer-Stigler, 2015). However these are some issues
related to industrialisation which affects country's economy, some of these are discussed below:
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Infrastructure – It is prominent issue which is affecting almost all developing nations. As
in comparison with other nations China's infrastructure developing percent is minor which major
concern in industrialisation phase. However some major cities in China have effective
infrastructure. Infrastructure is a mixture of different fundamental elements to promote a
country's people and trade. These are roadways links, contact, waste-water management, water,
and electrical distribution (Maggiori, Neiman and Schreger, 2018). Most of these aspects are
fundamental prerequisites for enhancing trades in a country. China is fastest-growing, most
populous country. However this country's weak infrastructure in different towns becomes an
obstacle that makes it impossible to transport key resources from those regions.
Corruption – Corruption is problem that occurs because of the circumstance where people
in power abuses their powers to their own profits. China is developing nation with the greatest
population in world. Competitiveness in all fields of trades is massive due to such a larger
population, which inevitably leads in corruption. Government leaders are telling citizens to pay
in order to do their job. Bribery leads to increased trading costs that have proven key concern in
country. Industrialisation has enriched China through increased trade, however the concern of
bribery also has been increased.
Environmental Concerns – In China, industrial revolution has expanded number of
industries/manufacturing units that have resulted in increased pollution. This major issue has
become widespread, as most of the China's cities are now experiencing extreme pollution that
affects people's health (Wei, 2017). Such problem is also not limited to air-pollution alone.
Because of which water pollution problem is also posed in the China, wastes from the factories is
diluted in river water
WTO is an organisation which regulates and controls international trade and financing
activities among different countries by issuing trade policies (Pilbeam, 2018). It monitors foreign
trades in order to safeguard the interests of all its member nations. There are multiple limitations
suggested by WTO regarding China to achieve its objectives. Such limitations are the obstacles
that China faces.
Recent trade policies of WTO
Latest world Trade Organizations trading policies advocate that each nation will abide by
the regulations on intellectual-property rights in order to safeguard that WTO participant
country. A further WTO economic policy is inter-exchange of technologies. Nations need to
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exchange their engineering confidential with world in this strategy so every nation in world will
benefited from it.
Approaches to trade agreement
World trade organization has proposed an approach to imposing IPRs in order to
safeguard a company of a nation that has been shielded from its intellectual properties. The WTO
adopts this approach to trade agreement so that each country can benefit from the improved
innovation, but only the nation with the intellectual property right can gain the commercial
benefit.
Challenges faced due to trade policies set by WTO
China is indeed a place known because of its smaller companies participating in
duplication of goods production methods for whom the IPR has already in other corporations'
possession. World Trade Organization has initiated a policy stating that no company will
leverage the rights to intellectual property which has a significant impact on country's trade.
Another major impact of WTO's policies is that these provides that each partner nation
should exchange technologies and other key information which is meaningful for others, with
other nations with aim to support them in coordinated development of world economy. But some
time this policy act as barrier in achieving competitive advantages in international market
(Valdez and Molyneux, 2015).
CONCLUSION
From above study it has been articulated analysis of different financial market is significant
for economises to boost their growth. Financial markets operations are fundamental base for a
country's economy and international trade. Every economy have some challenges either major or
minor which are affecting them directly or indirectly, specially for emerging economies these
challenges act as hurdle in way for becoming developed economy. In the above-mentioned
study, China is chosen as emerging economy dealing with different problems. This portion stated
that China's significant industrialization issues are infrastructures, bribery, and environmental
concerns. It was also outlined that the World Trade Association has implemented different
policies which have had a major impact on trading practices in country.
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REFERENCERS
Books and Journals:
Bhandari, A. and Javakhadze, D., 2017. Corporate social responsibility and capital allocation
efficiency. Journal of Corporate Finance, 43. pp.354-377.
Bolton, P., Santos, T. and Scheinkman, J. A., 2016. Cream‐skimming in financial markets. The
Journal of Finance. 71(2). pp.709-736.
Chuen, D. L. K. ed., 2015. Handbook of digital currency: Bitcoin, innovation, financial
instruments, and big data. Academic Press.
Fabozzi, F. J. ed., 2018. The handbook of financial instruments. John Wiley & Sons.
Gopinath, G., and et.al., 2017. Capital allocation and productivity in South Europe. The
Quarterly Journal of Economics. 132(4). pp.1915-1967.
Linnerooth-Bayer, J. and Hochrainer-Stigler, S., 2015. Financial instruments for disaster risk
management and climate change adaptation. Climatic Change, 133(1). pp.85-100.
Maggiori, M., Neiman, B. and Schreger, J., 2018. International currencies and capital allocation
(No. w24673). National Bureau of Economic Research.
Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.
Valdez, S. and Molyneux, P., 2015. An introduction to global financial markets. Macmillan
International Higher Education.
Wei, G., 2017, July. Analysis of Environmental Barriers in International Trade. In 2017 3rd
International Conference on Economics, Social Science, Arts, Education and
Management Engineering (ESSAEME 2017). Atlantis Press.
Online
Financial market. 2019. [Online]. Available through:
<https://www.bankofengland.co.uk/knowledgebank/what-are-financial-markets-and-
why-are-they-important>.
China: distribution of gross domestic product (GDP) across economic sectors from 2008 to
2018. 2018. [Online]. Available through:
<https://www.statista.com/statistics/270325/distribution-of-gross-domestic-product-gdp-
across-economic-sectors-in-china/>
China inflation rate. 2019. [Online]. Available through:
<https://www.chinadaily.com.cn/a/201908/09/WS5d4ccdc2a310cf3e35564bfd.html>
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