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Domestic and International Economy | Report

   

Added on  2020-03-16

21 Pages4539 Words215 Views
INTERNATIONAL TRADE, FINANCE AND INVESTMENTInternational trade, finance and investmentName of the Student:Name of the University:Author Note:
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INTERNATIONAL TRADE, FINANCE AND INVESTMENTExecutive Summary:The report is prepared for demonstrating the evaluation of allocation of capital within domesticand international economy. Domestic economy that has been selected for analyzing theallocation of capital is United Kingdom. On other hand, emerging economy that has beenselected for analysis of capital allocation is China. For the purpose of analysis, application oftrade theories has been explained that forms the basis for international trade. Several aspects thathave taken into account for the explanation of capital allocation are financial instruments,borrowings, and stock exchange and government policies. Furthermore, the challenges faced byemerging country due to industrialization and trade policies have also been demonstrated.
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INTERNATIONAL TRADE, FINANCE AND INVESTMENTTable of ContentsBackground of financial markets:....................................................................................................4Capital allocation within domestic economy (United Kingdom):...................................................6Capital allocation within international markets:............................................................................11Evaluation of emerging economy (China):....................................................................................12Critical evaluation of challenges that country faces due to industrialization and trade policies:..14Conclusion:....................................................................................................................................15Reference lists:...............................................................................................................................17
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INTERNATIONAL TRADE, FINANCE AND INVESTMENTBackground of financial markets:Financial market is a place where investors make trading of commodities, financialsecurities and value at lower cost of transaction. The channel of financial market helps in briningfunding to business without investment opportunities that helps in improving economyefficiencies. Segments of financial market comprise of direct and indirect finance. In segment ofdirect financing, funds are directly borrowed from lenders by borrowers by selling financialinstruments in the financial market. In segment of indirect finance, funds are borrowed indirectlyfrom lenders via the financial intermediaries by issuance of financial instruments that areclaimed on future income and assets of borrowers. Large magnitude is involved in globalfinancial market that reflects investor’s desire for making global investment and diversificationcreation (Liu et al. 2015). Several regulators enhance financial stability in the financial market in the globalfinancial system. Apex bank at domestic and international level in respective economies plays acrucial in regulating the mechanism of financial market. Supervision and regulation of bankingsystem in different countries are the main activities of apex banks that ensures soundness andsafety of banking system (James and Quaglia 2017). Moreover, the banking institutions protectcredit rights of investors as they play a considerable role in nation’s payment system anddepository institutions. Mechanism of financial market:Mechanism of financial market is the system, structure and conventions that exist fortrading of shares and facilitating the issue. International; financial market has several elements
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INTERNATIONAL TRADE, FINANCE AND INVESTMENTsuch as financial institutions, securities market, international currency market, international debtmarket, department of foreign exchange and currency exchange. Financial market mechanism:(Source: created by author)The above figure depicts mechanism of flow of funds in the financial market throughdirect and indirect market segments. Here, the funds flow from lenders or savers throughfinancial intermediaries into the financial market and they use that fund to person or borrowerseeking money (Stiglitz 2017). Such lenders and borrower involves business firms, households,foreigners and government. Financial instruments:
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INTERNATIONAL TRADE, FINANCE AND INVESTMENTMany exchanges such as spot market, forward market and future market dominate theinternational capital market. Different countries have different stock exchanges that facilitateexchange of money and trading of securities. Some of the stock exchanges are London stockexchange, New York stock exchange, Shanghai stock exchange and National stock exchange.Over the counter and securities is one of the financial instruments that comprise oftreasury bills, stock and bonds. Instruments that are included in the over the counter derivativesare interest rate swaps, forward rate agreements (Shankar 2015). Cash instruments- Cash instruments are transferred readily and value of suchinstruments are directly derive from market. Loans, receivables, financial assets, stock optionsand deposits are some of the cash instruments (Perera et al. 2016).Derivative instruments- Derivative are the financial instruments that derive value fromunderlying entities such as index, interest rate and assets. Derivative contracts comprise offuture, forward, swaps, option that are regarded as arrangement of payment exchange or bilateralcontracts. Capital allocation within domestic economy (United Kindgom):UK financial sector is one of the largest financial service centers in London and EuropeanUnion. Financial market of country helps in facilitating capital allocation within the country.Moreover, in the present economy situation, the extent of state ownership and capital allocationefficiency is negatively related. On other hand, there exist positive relationship between capitalallocation efficiency and firm specific information in returns from domestic stock of country.Thereafter, the legal protection of minority investors has positive correlation when the capital isefficiently allocated. This in turn assist declining industries in countries to curb the over
Domestic and International Economy | Report_6

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