International Trade, Finance and Investment | Report
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Added on 2020-03-16
International Trade, Finance and Investment | Report
Added on 2020-03-16
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INTERNATIONAL TRADE, FINANCE AND INVESTMENTInternational trade, finance and investmentName of the Student:Name of the University:Author Note:
INTERNATIONAL TRADE, FINANCE AND INVESTMENTExecutive Summary:The report is prepared to evaluate the working of financial markets in allocation of capital withininternational as well as domestic economy. Analysis of allocation of capital in the financialsystem of home or domestic economy that is United Kingdom is done. Furthermore, theemerging economy that has been chosen for the analysis of capita allocation is China.Explanation of the capital allocation has been done in several aspects such as investments,borrowing, financial instruments and stock exchange.In the later part of report, severalchallenges faced by Chinese economy due to trade policies and industrialization have beendiscussed.
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
INTERNATIONAL TRADE, FINANCE AND INVESTMENTBackground of financial markets:Financial market is one of the marketswhere people come together to trade financialsecurities as well as commodities and values at low transaction cost as it reflect both supply anddemand. In addition, securities take into account stocks, bonds as well as commodities thatinvolve precious metals or agricultural products. The term financial markets had broadermeaning as it describe any marketplace where people trade securities that include equities,derivatives and bonds. Global financial market is faced with large magnitude that reflects desireof investors to make investment globally and creating diversification across constantly risingglobal flows and growing number of securities. Global economic growth is fostered byinterconnection of global market at global level that helps in facilitating direct and indirect flowof trade and thereby increasing wealth of investors (Brandt et al. 2013). There are many regulators in global financial system that helps in enhancing financialstability. Central banks helps in regulation of bank for all the respective economies that isdomestic and international. The federal reserve system of banks are categorized in to categoriessuch as it helps in conduction of monetary policies by influencing the credit and monetarycondition of economy in pursuit of moderating long-term interest rate, stable pricesand ,maximum employment. Central banks helps in regulation and supervising of bankinginstitutions and this helps in ensuring soundness and safety of financial and banking system ofeconomy. It helps in protecting credit rights of investors. Banks helps in providing depositoryinstitution, foreign official institutions with financial services and has a major role in thepayment system of nation (Barnett et al. 2014).
INTERNATIONAL TRADE, FINANCE AND INVESTMENTMechanismsThe mechanism of financial market is the system, structure and conventions that helps infacilitating trading and issue of shares. Some of the main elements of international financialmarket is international debt market, international currency market, international securitiesmarket, public institutions, financial institutions, market for derivate financial instruments anddepartment of currency exchange and foreign exchange. Two types of market in the financialsystem includes over the counter market and exchange drive market. Tools or instruments The international capital market is dominated by many exchanges that comprise offorward market, future market and spot market. Stock exchanges such asLondon stockexchange, Shanghai stock exchange and Now York stock exchanges enables traders and businessto deal with foreign transactions by providing a platform that facilitates exchange of money.Derivative instruments-These are the instruments that derive their value from thecharacteristics of one or more underlying entities such as interest rate, index and assets. Suchinstruments are over the counter and exchange traded derivatives. Cash instruments-Cash instruments are instruments whose value are directly derivedfrom markets and they are readily transferrable. Such instrument involve securities andinstrument such as deposits and loans. Some of asset instrument involves deposit account,financial assets and loan and receivables.
INTERNATIONAL TRADE, FINANCE AND INVESTMENTSecurities and over the counter derivatives are another types of financial instruments.Securities involve stock, bonds and treasury bills. On other hand, over the counter derivativesinvolves instruments such as forward rate agreements, interest rate swaps and stock options.Capital allocation within domestic economy (United Kingdom):The financial sector of United Kingdom is one of the largest in the European Union andthe largest financial center in Europe is city of London. Financial markets help in bringingimprovement in the allocation of capital within the home country (United Kingdom). In addition,efficiency of capital allocation is viewed as negatively correlated with the extent of stateownership in the present economy as well as positively correlated with the amount of firm-specific information especially in domestic stock returns. It mainly positively correlates with thelegal protection of minority investors (Desierto 2015). Therefore, strong minority investors helpin curbing overinvestment especially in declining industries. The improvement in capital allocation of economies is done in there ways. In the firstinstance, countries impounding specific information into individual prices of stock have lesssynchronicity in their prices of stock. Secondly, as there is declining state ownership would leadto improvement in capital allocation. Thirdly, better allocation of capital is associated withstrong minority rights of investors. In regard to minority rights to investors, United Kingdomscores highest. The management of assets make up large market for capital market in UK.Channeling of new capital to public and private companies involves fewer role assetmanagement. One of the important intermediary in the financial system of country is assetmanagement industry due to underlying connection between clients’ service and investments(theinvestmentassociation.org 2017). This particular comes with implications for both growthwithin economy and returning to millions of saver and investors. In this regard, it is required to
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