International Trade Finance and Investment

This study discusses the financial market framework, the distribution of capital to the international and domestic trade market, and the assessment of the developing economy and the difficulties faced by the country related to industrialization and trade policies.

International Trade Finance and Investment
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EXECUTIVE SUMMARY
The study summarises instability in emerging nations in international capital and fiscal
markets. The key aspects of consideration are how capital markets work to allocate equitable
distribution for purposes of trade, investment and development within same domestic and
international sector, and to determine the major issues faced by a developing countries as a
consequence of industrialization and foreign trade policies.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK...............................................................................................................................................4
(A). Domestic Economy And International Trade Investment And Development:........................4
Background of the financial market:............................................................................................4
National economy and capital allocation in UK:.........................................................................6
International economy and capital allocation:.............................................................................9
Financial investment and trade theory:......................................................................................11
Contributions of international trade:..........................................................................................11
(B). Key Challenges Faced By Developing Economy Due To Industrialization And Trade
Policies:..........................................................................................................................................11
Analysis of Russian Economy on four important factors:.........................................................11
Challenges faced by Russia due to development/industrialisation:...........................................17
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
The processes of trading goods and services through one country to another in
commercial economy are recognized as international trade. It covers two core practices like
importing, flowing products and services from different other countries within country, and
selling products and services marketed in foreign market in a country (Petros Mavroidis, 2012).
The expression investment in finance is event linked to transferring funds to various activities to
produce enough revenue in near future. This study discusses the financial market framework, the
distribution of capital to the international and domestic trade market. Further, this study
addresses the assessment of the developing economy, assessment of the difficulties faced by the
country related to industrialization as well as trade policies.
TASK
(A). Domestic Economy And International Trade Investment And Development:
Background of the financial market:
Financial markets are regarded to be a main aspect of capitalist economy-related efficient and
useful activity. It is a broader term, referring to a platform where stock or shares are exchanged.
The financial market primarily a marketplace where multiple traders trading assets like stock,
securities, foreign currency, derivatives and ferox related items, etc. Financial market's principal
function is to facilitate transactions that might encourage companies to invest and fund their
investments based on their choices and risk management. It will allow to take advantages of
surplus wealth and boost economy.
Traders and big financial corporation are regarded as sector in which investment in
mortgages and bonds are offered and purchased as debt market. Investing in debt is considered
mainly to entail lower risk opposed to investments in equities, but to generate lower yield on
investment. multiple forms of bonds are considered the safest and most common method of
investing in debt, their value fluctuates less in price than any other funding investment (Paul,
Maurice Obstfeld, Marc. 2014). For instance, Corporation ABC is planning to offer $200 million
of funds to bond holders, several of prevalent instance of debt instruments are loans debenture,
bonds etc. While Equity market involves the portion of company's ownership and control that
makes sufficient earnings or profits. These markets are unstable in nature, since investors can
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lose full stocks or securities in event of business bankruptcy. There are several variables that
trigger a fluctuation in equity market, like political, cultural, financial and legislative incidents.
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National economy and capital allocation in UK:
In United Kingdom, the economy is autonomous, established and focused on global
trade, that remains conservative at approx 1.4% in 2019 and is anticipated to be approx 1.3% in
year 2020. This is discovered that consumer expenditures have a huge role to play in driving
total economy, and coming year's economy could be reduced due to falling housing market or
slow employment. It has also been noted that rising business and trade investment and sluggish
consumer spending would in coming years pull back entire GDP. These projections believe that
perhaps, as particularly in comparison with previous year, the original agreement on Brexit
contract may result in slow economic advancement (Akhtar and Jones, 2014).
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Banking system: UK's banking sector, which began in Kingdom of England in17th century
from that time on, has grown too much which has been offering various valuable banking
services which supports operating of different corporations and private funding. The UK's
banking industry has recently seen four large banks like Royal Bank of Scotland (RBS), Lloyds
Group, HSBC and Barclays.
The diagram above represents the no. of banks and financial institutions in UK with
recent respective market share (Banks of United Kingdom, 2019). It has been noted that HBOS
as well as Lloyds TBS joined or combined to establish the largest bank in UK at time of fiscal
crises (Desierto, 2015).
1. Role of central bank:
The Bank of England being established in year 1694 for the very first time and became
nationalized in year 1948. BOE served a variety of roles, such as setting the interest rate, which
helps to sustain UK's inflation rate around approx 2%. This also supervises actual supply of
monies or funds and monetary or fiscal resources within economy to maintain sufficient working
capital and liquidity manages the United Kingdom foreign currency reservation to assist in
settlement of international debts or obligations, and also operates as a borrower of last recourse
to provide monies to build efficient liquidity and eliminate shortages of funds (John H. Barton
and et. Al., 2006).
2. Monetary policy:
In economical terms, the measures taken by UK's central bank to decide on effective cost
of borrowing monies and the massive amount of monies available in economy is recognised as
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monetary policy. The core aim of an efficient monetary policy should be to reinforce the overall
economic elasticity in order to prevent recessions as well as keep inflation lower. UK's monetary
or fiscal policy's intention is to maintain CPI 2 percent + /-1 as lower inflation is perceived to be
the main elements of higher investment. On other hand, United Kingdom's monetary policy is
mainly based at sustaining a balanced and productive economy that helps to minimize
unemployment.
3. Regulations governing the financial system: A seemingly infinite sequence of new
legislation, rules, guidelines, committees, boards and departments have been formed since before
financial crisis of year 2008 to either change or reform the current administrative framework and
push this forward. There are no. of bodies in country UK that govern the fiscal system, like FPC
(Financial-Policy Committee) is compelled to identify, handle and take particular initiative to
minimize the continuing and coming years risks that threaten UK's entire fiscal system's
adaptability. This primarily decides the increasing problems with overall financial system in
order to rising the resources of corporate banks and investors to cover losses. Often component
of BOE is prudential regulatory body, which is charged for overseeing corporate governance
processes in nearly 1720 UK's banks, credit institutions, insurers and major investment
institutions (Frederic and Stanley, 2012).
There are a few other UK authorities which have put greater emphasis on prudential
legislation like micro credit issues, which involves regulations for individual sector organizations
like borrower, commercial bank, financial institution, insurance companies.
Domestic money market:
(a) Savings: Savings are the processes of retaining a particular portion of current earnings to
encounter the future provisions. Saving provide assistance to raise bank deposits, promote the
purchasing of equities and boost funds maintaining for short term. It is also standardized means
of measuring sustainable national revenue, that is above the consumption gross domestic product
and other taxes. Therefore, it is reported that, in near term, saving is quite important to support
and enhance UK economic development as it relates to funding investment.
(b) Loans: In modern times, having enough money in hands for consumers and enterprises to
fulfils their costly demand or expenditure in various sources is uncommon. Thus, long-term
mortgages are required to aid in reduction of impact of operating free cash flows and develop
creditworthiness.
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Stock markets
London stock exchange: The London Stock Exchange (LSE) refers to largest fiscal exchange in
the United Kingdom and Europe's largest. The domestic markets, which began in 1773, became
merged into in year 1973 in Great Britain and Ireland exchanges, commonly known as LSE. The
London Stock Exchange helps businesses to obtain capital from outside investors.
AIM: The Alternative Investment Market (AIM) is indeed a sub market of London Stock
Exchange (LSE) explicitly designed to assist smaller companies raise capital through stock
market. It allows small businesses and enterprise to produce capital through regulated exchange
itemisation, that makes trade regulations more flexible than primary market. There 3,600 small
companies from around world that were part of the AIM since its coronation. All kinds of minor,
through, early phase enterprise are beneficial via AIM's legislation because they could easily
raise monies to support business activities.
International economy and capital allocation:
International capital markets: In international framework, international capital market has a
defined system in which officials, companies and individuals borrow and spend across national
boundaries. There are multiple benefits of international-capital market, like providing better
yields and lower borrowing expenses, and providing numerous potential incentives for
businesses in different countries that tend to minimise risk factors (John and et.al. , 2016).
1. Commercial banks:
a) Savings: It relates to sacrificing expenditure including capital expenditure. Saving
seems to be strongly linked to internal investment, as the latter provides the other with funding
sources. Through not utilizing profitability to purchase produced products and services, it is
possible to spend resources specifically to use them to produce productive assets such as capital
equipment.
b) Loans: In Finance, Loans to other individuals, corporations, etc. are lent by others like
corporations or other organizations. The creditor (i.e. the borrower) accepts a debt and seems to
be usually liable to pay cost of interest on debt unless it repaid and reimbursing principal balance
of loan.
2. Bond markets:
The bond market, often referenced to as credit market, which is global fiscal sector
market where stakeholders can easily exchange debt securities permitted by regulators and
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governments. Euro-dollars debt is a U.S. Contralateral dollar debt offered by an overseas
company and maintained in a global entity in both U.S. And borrower's countries of origin. For
foreign or global coronations and different countries government such securities are crucial
origin of investing and funding.
3. Foreign Exchange markets:
The frequently acknowledged foreign exchange markets as a ferox or FC markets are
indeed a global marketplace over the-counter (OTC), setting currency fluctuations
internationally. This provides the parties with a legal and authorized framework for selling,
buying, speculating currencies and exchanging financial instruments simply. Such markets are
listed on grounds that, depends on form of transactions, there are 2 kinds of currency markets
forward and spot.
4. Global stock markets:
Stock exchanges are controlled forums for trade that brought together all different sellers
and purchasers of various economic instruments or stocks such as securities, bonds and other
trad-able stocks. There are numerous massive stock exchange markets around the world which
are advantageous in turning fiscal securities merchants into a legitimate and powerful channel.
Following are some major SE, as listed below:
 Tokyo Stock Exchange, Japan
 Shenzhen Stock Exchange, China
 Toronto Stock Exchange, Canada
 Hong Kong Stock Exchange, Hong Kong
 London Stock Exchange, United Kingdom
5. Derivatives:
A derivative in economic terms is a fiscal security which has a particular assets that
depends on reliant or group of specific resources. Such FE derivatives are known to be legal
agreement between various parties on rate that could be adjusted depending on value of
underlying securities. Equities, securities, assets, currency, exchange rates, and price indices are
the most important fundamental capital of derivatives. These funds are usually bought from
brokerages (John, Devesh Kapur and Richard, 2017).
6. Non – bank financial institutions:
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Financial institutions that offers a range of banking-related goods and services are
recognised as NBFI without any banking license. Such institutions are normally not permitted to
carry traditional marketable securities for clients in their saving accounts. NBFCs ' key purpose
is to promote complimentary financial as well as banking services such as acquisition, risk
management, financial advices, buying and sales, money delivery, and money supply
monitoring.
Financial investment and trade theory:
Ricardian theory: The concept of Ricardian was first constructed in year 1817 with main sole
aim of elaborating on nature and provenance of economical rent. The key presumption behind
such a theory being that land-rent is due to variants in productivity and situation of various land
parcels. That's due to dominant and invincible powers of soil that gaze around land supply.
Ricardo says land-rent exists even though different land areas with varying degrees of productive
jurisdiction, such as some lands, are much more valuable than others.
Contributions of international trade:
World trade organisations (WTO)
It's one of the world's most vital international bodies established to interact with trades
and investment regulations between different countries. It has primary goal of assisting
importing and exporting producers of valuable goods and services that help to strengthen world's
economy.
(B). Key Challenges Faced By Developing Economy Due To Industrialization
And Trade Policies:
Analysis of Russian Economy on four important factors:
(a) Production/ Manufacturing: In Sept. 2019, manufacturing production in country Russia
rose by 3.20 % over same month last year. Between 2000 to 2019, industrial growth in Russia
ranged 4.15%, hitting the all-time higher of approx. 27.10% in Apr. 2000 and a historic low of
approx. -28.10% in Jan. 2009. Russia's manufacturing and production sector's participation to its
Gross domestic product rate has stayed almost stable, with an average of around 35% over years.
Russian federation's significant industries had already focused on their natural resource
extraction. One of it's leading industry is machinery manufacturing, which suffered badly after
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Soviet Union's collapse as capital shortages were serious. It has re-emerged over time as well as
is leading supplier of capital goods to economy's different other sectors. Russia
(Production/Manufacturing. 2019).
(b) Inflation in Russia: Russia's yearly inflation decreased from approx 4.0% in previous month
to approx 3.8% in Oct. 2019, in conjunction with industry expectations. This was the lower rate
after November 2018, while rates for products and services increased at a smoother speed. Food
prices expanded approx 4.2 percent in Oct., particularly in comparison to approx 4.6 percent in
Sep. month, with up-trend influence arriving from vegetables and fruit (approx 3.4 percent),
bakery's items (approx 7.7 percent), meat products (approx 3.0 percent), fish and sea foods items
(approx 5.2 percent), and milk & dairy product lines (approx 6.4 percent). Furthermore, the cost
of non-food items rose 3.2% (up from 3.4% in Sep. month) and the price of services grew 3.8%
(up from 4.0 percent in Sep.). In Oct. month, the base yearly inflation percentage fell to approx
3.7%, lowest since 2018, Dec (Russia Inflation Rate. 2019).
According to international macro forecasts and analysts projections, inflation level in
Russia is forecast to be approx 3.80% by end of this year. Look ahead, it is forecasted that
Russia's inflation level will be approx 2.90 in next 12 months. In longer term, Russian inflation
rate is expected to average approximately 4.00 % in year 2020.
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Illustration: Russia Inflation Rate. 2019

(c) Employment in Russia: Employment rate (ER) in Russia metrics the no. of individuals who
have a employment or job as a proportion of population of working-age. employment level in
Russia dropped from approx 59.90% in Aug. 2019 to approx 59.60% in Sep. Employment in
Russia reported approx 63.83% from year 2013 to year 2019, hitting an all-time higher of approx
66.60% in Aug. 2016 and historic low of approx 58.80% in Jan. 2019 (Russia Employment Rate.
2019).
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Illustration: Russia Employment Rate. 2019

(d) International trade (Major exports and imports): The major export from Russia are
energy (petroleum, oils, petroleum by-products, coal, gas etc.), rolling iron, ferrous, non-ferrous
metals and minerals. Most of Russia's exports are oil or petroleum goods. Certain major exports
include natural gas, wood, pesticides, capital goods, and arms. Russia is importing machinery,
appliances, equipments, auto-mobiles, consumer products, water, chemicals, consumables from
industry. Country's key trading associates or partners are: Finland, Italy, Turkey, China,
Germany, Switzerland, United Kingdom and Poland. Since year 1998, Russia has had huge and
constant trade profits or surpluses, primarily because of its wealthy natural resources, particularly
hydrocarbons (in specific crude-oil as well as natural gases). In 2017, Russia's trade surplus
crossed a cumulative value of roughly USD 115 billion, as per latest available World Bank's
data. Overall exports of goods stood at approx USD 444 billion in year2018 (approx + 25.5
percent relative to year 2017), while aggregate imports of goods stood at approx USD 249 billion
(approx + 4.6 percent relative to year 2017). Russia's trade surpluses increased to approx USD
194 billion, up approx 69 percent from its scale in 2017 (Russia's Central Bank, 2019). Exports
from Russia have benefited immensely from favourable pricing conditions while import growth
have slowed.
Imports in country declined from approx $21831m in Aug. 2019 to approx $20892m in
Sep. Russia's Imports averaged approx USD13765.42m from year 1994 to 2019, hitting a
historic high of approx USD32481m in Dec. 2013 and historic low of approx USD2525m in Jan.
1999 (Russia Imports, 2019).
Russia's Exports decreased for 5th consecutive month by approx 9.3% to approx
USD35.04 billion in month of Sep in year 2019, primarily because of decline in shipments to
different non CIS countries (approx -10.7 percent) whereas those to such nations edged-up
approx +1.1%. During 3rd quarter of 2019, figures of exports has been dropped by 7.7% from
same period in year 2018. Russia's Exports has averaged approx USD 22332.34m from year
1994 until year 2019, touching all time highest of approx USD 50248m in Dec. 2011 and record
lowest of approx USD 4100m in 1994, Jan (Russia Exports, 2019).
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Challenges faced by Russia due to development/industrialisation:
(a) Political Stability in Russia:
Russia is facing lower ranking in political stability index due to
development/industrialisation. Russia's raking in year 2017 was -0.05 which is improved as
compare to previous years. As per statics of World Bank from period 1996 to year 2017. An
average index for Russia in such period was -1points while minimum of approx -1.51 points in
year 2004 and highest of approx -0.67 points in year 2017. This negative political stability create
barrier in effective implementation of micro and macro economics policies in Russia.
b) Labour productivity in Russia:
Due to effect of industrialisation in recent years labour productivity has been increased.
However, in year 2015 and 2016 this labour productivity rate has been declined due to global
crisis. In year 2017, labour productivity within Russia rose by approx 1.5% p.a. after a decrease
of approx 0.3% in 2016. Between 2003 to 2017, production in Russia averages approx 3.15%,
hitting an highest of approx 7.50% in year 2006 and a lowest point of approx -4.10% in year
2009. Increasing participation of other countries in growth of labour productivity create
challenge of over-dependency on other countries' labour and indirectly leads to unemployment
(Russia Labour Productivity, 2019).
c) Environmental Concerns in Russia: Russia generates a large share of world's greenhouse
gases, making it a key participant in global climate treaties. Until Russia ratified this, Kyoto-
protocol didn't enter into effect. However, Russian positions are just an empirical question
in forthcoming climate talks. Russian science and population have taken a much more skeptical
stance on people-made climate changes than rest of world, school-education is so weak, and
publicly available information upon climate change is quite limited. Woodlands are more
accessible areas of country endure as a result of expansive deforestation. Due to the endeavours
of international logging processes, the level of de-forestation has risen in Ussuri area in far-
eastern Russia. Airborne contaminants in many parts of Russia have done destruction to
vegetation. In northern Siberian city, Noril'sk and Kola Peninsula, northwestern Russia, cobalt
and nickel furnaces release large volumes of sulphur dioxide. This affect Russia's image on
international level and some investors may avoid to make investments in due to such image
(Environmental Concerns: Russia. 2019).
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Challenges Russia is facing due to trade policies set by WTO:
a) Recent trade policy:
Russia, being a WTO leader, is destined by its intergovernmental undertakings and
responsibilities, thereby limiting the potential of trade policies intervention. At same time, bulk
of problems that can be observed in the domestic economy as well as foreign trade in front of
Russia's WTO membership stay the same. Russia's policies are not so much liberal in trade with
US and other developed countries. In Russia, companies of US facing no. of non-tariff/tariff
trading barriers while exporting to Russia. For instance, alcoholic items importers having long-
standing requirements and terms that entire excise taxes, customs duties and taxes on bear-
alcohol has been paid advance through bank guarantee or deposits, in respect of which process
related to reimbursement is too slow. These countries are worried that examination and
certification processes conducted by various Russian government departments and EEC
(Eurasian Economic Commission, the Eurasian Economic Union's Executive Body, known as the
EAEU) introduce an excessive degree of complexity resulting in higher costs and complications.
b) Approaches to trade agreements:
Trade agreements could be either bilateral or multilateral. Here Bilateral refers to that
only two nations trading with each other on some specific trade terms. Normally this kind of
agreements restricts other nations to do trade with their rival nations . While Multilateral
agreements are entered into by more than two nations with mutual consent on any specific or
general trade matters. Here WTO's policies restricts Russia to enter into any kind these
agreements which provides benefits to other countries in BRICS.
(c) Challenges faced due to trade policies set by WTO / GATT:
One major challenge before Russia is that trade policies of WTO and GATT are directly and
indirectly influenced by US and other developed countries. Also these policies are unable to stop US-
China Trade war that is significantly influencing Russia's economy.
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CONCLUSION
The above study summed up the concept of international/global trade, financial services
advancement. The broader concept is termed finance, which describes the matters related to
borrowing, financing, investment, fiscal leverage, cash outflow as well as inflow and expenditures.
Moreover, WTO policies also play a considerable role in different country's economical structure and
financial markets.
Recommendations
1. Russia should follow WTO Policies to strengthen it's performance in global financial
markets.
2. Ignorance of environmental concerns may lead to serious hazard for country so Russia
should put more emphasises upon such area.
3. Trade conflicts with America also affects country's economy to an considerable extent so
Russia should follow steps in terms of policies of WTO regarding resolving such
conflicts.
4. Russia should take into consideration the above discussed challenges for overall
economical and financial development.
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REFERENCES
Books and Journals:
Akhtar, S. I. and Jones, V. C., 2014. Proposed transatlantic trade and investment partnership (T-
TIP): In brief.
Desierto, D. A., 2015. Public policy in international economic law: the ICESCR in trade,
finance, and investment. Oxford University Press, USA.
Frederic S. Mishkin, Stanley G. Eakins, 2012. Financial markets and institutions, 7th edition,
Pearson Education. Print ISBN: 0273754440, 9780273754442
John H. Barton and et. Al., 2006. The evolution of the trade regime: politics, law, and economics
of the GATT and the WTO, Princeton University PressPrint ISBN: 0691124507,
9780691124506
John P. Lewis, Devesh Kapur and Richard Webb, 2017. The World Bank: its first half century,
Brookings Institution. Print ISBN: 081575230X, 0815752342
Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz. 2014. International economics: theory and
policy, 10 edition Pearson Education.
Petros Mavroidis, 2012. Trade in goods: the GATT and the other WTO agreements regulating trade
in goods, Oxford.Print ISBN: 9780199657483, 0199657483
John H. Barton and et. Al., 2006. The evolution of the trade regime: politics, law, and economics of
the GATT and the WTO, Princeton University PressPrint ISBN: 0691124507,
9780691124506
Online:
Russia Exports. 2019. [Online]. Available through:
< https://tradingeconomics.com/russia/exports>
Russia Imports. 2019. [Online]. Available through:
<https://tradingeconomics.com/russia/imports>
Russia Labor Productivity. 2019. [Online]. Available through:
<https://tradingeconomics.com/russia/productivity>
Russia Inflation Rate. 2019. [Online]. Available through:
<https://tradingeconomics.com/russia/inflation-cpi>
Russia Production/Manufacturing. 2019. [Online]. Available through:
<https://tradingeconomics.com/russia/manufacturing-production>
Russia Employment Rate. 2019. [Online]. Available
through:<https://tradingeconomics.com/russia/employment-rate>
Environmental Concerns: Russia. 2019. [Online]. Available
through:<https://naturvernforbundet.no/international/environmental-issues-in-russia/
category930.html>
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