Financial Market and Capital Allocation

Executive summary
An efficient and competitive financial market has in place stable financial instruments, which
are assets that can be traded and they include; bonds, shares, currencies, and others. The
market also has key players such as the investors, intermediaries and regulatory bodies. Their
main aim is to trade is carried out, and the market also grows. The financial processes in most
financial markets have been made effective and efficient with the availability of the financial
instruments and the key players. Capital allocation is another operation that ensures trade is
carried out effectively as discussed in the paper. To add to this, emerging market economies
and industrialization is also critically discussed.

Contents
Executive summary....................................................................................................................1
Introduction................................................................................................................................1
Financial marketplace.............................................................................................................1
Main financial instruments.....................................................................................................2
Types of main financial instruments...................................................................................2
Key players in the financial market........................................................................................3
Financial processes.................................................................................................................4
Allocation of capital within a domestic economy..................................................................6
Allocation of capital within the international market.............................................................7
Evaluation of BRICS emerging economy..............................................................................8
Opportunities......................................................................................................................9
Threats................................................................................................................................9
Push factors that make the emerging market attractive....................................................10
Pull factors that make the emerging market attractive.....................................................10
Challenges country faces due to industrialization and trade policies...................................11
Unsuitable technology......................................................................................................11
Pollution............................................................................................................................11
Increased disparities in wealth distribution......................................................................11
Restrictive policies............................................................................................................12
Social disadvantages.........................................................................................................12
Conclusion................................................................................................................................12
References................................................................................................................................14

Introduction
The report mainly highlights the financial market and market places, the financial instruments
used in the capital market such as bond and currencies. The key player involved in the trade
are also discussed, the financial processes as they take place in the various financial market
and capital allocation, both in domestic and international markets. The emerging economy
and industrialization are also discussed in detail.
Financial marketplace
The financial market involves the trade of securities such as; precious metal, stocks,
currencies, equities, and bonds, as well as derivatives which includes options and futures.
Both transactions are carried out at a low cost. Financial marketplace, therefore, is a place
where people engage in the trade of futures, options, currency, and stock at a low cost of the
transaction. The market is also known as the capital market because it involves a lot of
businesses that are carried out under the financial market. Most investors get into the market
to make more money, and to also grow their business (Segal, Shaliastovich, and Yaron,2015)
the capital market offers a great opportunity for most businesses to grow fast. However, the
market varies in size; some of them are small while others are big, an example of the biggest
financial market is the New York Stock Exchange (NYSE).
Main financial instruments
These are assets which can be traded or act as a form of monetary contract between parties
involved in a trade. They can be informed of cash which in financial term is currency, shares
which is an evidence of ownership of an entity interest or a bond being the contractual right
for the trader to either receive cash or provide it. Therefore, the financial instrument is simply
a capital package that investors can trade (Malmendier, Pouzo, and Vanasco,2018)

Types of main financial instruments
Bond
It is a financial instrument created to raise capital for the financial market. The bond
issuer usually makes loan agreement with the investor, whereby the party is issuing
the bond, agrees to pay a certain amount of cash in a set date that they both agreed on.
In this case, the investor purchase the bond and that is loaning the bond issuer; the
money lent out is supposed to be paid back on the agreed date when the bond matures.
But the investor will be receiving interest before the maturity period (Camilleri, and
Camilleri, 2017)
Shares
According to Lehmann (2016), these are units that represent ownership of interest of
an entity or a corporation by a person or business. The shares represent the percentage
of profit that the investor is eligible for in case they incur the profit, and it is earned in
the form of dividends. The main types of shares include; preferred shares and
common shares.
Currency
This is a medium of money exchange in which the money can either be in the form of
notes or coins. Currency varies depending on the countries it’s representing. It can
either be in US dollars, Australian dollars, European euros, British pounds or Indian
rupees. These currencies are the main ones traded amongst nations in the financial
foreign exchange market (Huang,2018)
Equities
They include stocks or shares that an individual or a company owns, and they are
traded in the security exchange market.