International Trade Finance & Investment - Desklib

This report discusses international trade, finance and investment, with a focus on capital allocation within domestic and international markets. It also evaluates the economy of Australia and the challenges it faces. The report is prepared for the gaining and enhancing the understanding about international trade, finance and investment.

International Trade Finance
& Investment
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EXECUTIVE SUMMARY:
The report is prepared for the gaining and enhancing the understanding about international
trade, finance and investment. With the information related to investment opportunities the invest
will be made by the investor in an economy with the belief of getting higher return. These all
factors help them in increasing their GDP. Capital allocation can be done by the organization
from various domestic and international sources. Apart from these, economy of any Australia
and the challenges faced by them in growth of an economy is discussed.
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Table of Contents
EXECUTIVE SUMMARY:............................................................................................................2
INTRODUCTION...........................................................................................................................4
BACKGROUND OF FINANCIAL MARKETS............................................................................4
MAIN BODY..................................................................................................................................5
UK domestic economy:...............................................................................................................5
TASK 1........................................................................................................................................6
a) Capital allocation within domestic economy.......................................................................6
b) Capital allocation of UK within international market:........................................................7
TASK 2........................................................................................................................................9
Evaluation of an Economy of your choice..............................................................................9
Challenges faced by the Australia in the markets..................................................................10
CONCLUSION:............................................................................................................................12
RECOOMENDATION:................................................................................................................12
REFERNCES:................................................................................................................................13
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INTRODUCTION
International trade means exchange of good and services between the countries. Here two
countries purchase or sell their products with one another. Exchange can be in the form of import
or export. It is the way in which economy of two nations interact with each other. International
trade finance is a process where financial helps are providing by various institution so that trade
between the countries can be possible (Ahn, 2020). In this various financial instruments are used
for international financing. This concept is introducing for the smooth functioning of the trade. In
the last international Investment is a strategy where various investor invests their sum in
diversify way by buying various assets in international market. This is done to acquire ownership
in various country other than their home country (Trebilcock and Trachtman, 2020). These all
are the good tools for enlarging the economies of the countries and building good relation within
them. In this report researcher play the role of a junior consultant who works in international
organisation. The head office of the firm is in London. The firm has an international investor.
Client is ready to invest capital in the firm but before making contract with the investor the firm
want to gain a detailed knowledge regarding the two concept which are discussed earlier (Roy,
2021).
BACKGROUND OF FINANCIAL MARKETS
Financial market provides a place where buying and selling of financial instruments take
place. In this market assets are exchanges to generate avenues. It is also known as capital market
or wall market. In simple term a place where investor and businessmen meet each other to raise
fund for the organization. There are two types of financial market i.e., money market and capital
market. Capital market is the place where trading of long are done on long term assets. Here
stocks and bonds are being purchased and (Kerr, 2020). Capital market is also divided into two
sector, primary market and secondary market. If trading of instruments are done by the investor
and the business directly then it is known as primary market and if broker is involved in buying
and selling of long term instruments, then it is secondary market. The capital market is a riskier
market to invest in. Money market is the market which deals in those short term instruments that
can easily be convert into liquidity. The short term assets are those which is can be liquidized in
less than one year. This market is created so that government or other business can raise capital if
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they need money in short term (McGovern, 2018). There is different type of financial markets
which are as follow:
Stock market: it is that type of market where shares of the company are being traded
publicly. Shares are being traded at the price which company decide. With the help of stock
market companies list their shares for public offering.
Commodities market: Place where buying and selling of natural resources take place.
Resources like gold, oil, coal etc. This market is being developed because these are natural
resources their prices keeps on fluctuating depends upon their demand and availability (Khattak,
2020).
Derivatives market: The derivative market is the place where prices of the underlying
assets is being decided by one or more party by signing an agreement or contract based upon the
assets price. This market is a risker market as the rate of transaction depends upon the future.
Bond market: It is also known as debt market or credit market. It is the place where
purchase and sale of debt securities is taken place. The debt securities can be of government or
other entities. They are traded to raise capital to pay their debts.
Foreign exchange market: Foreign exchange market is the place where exchange of
international currency happens. It is over the counter market that decide the rate of exchange in
the global currencies. It is one of the largest market in the world. Here conversion of money take
place via telecommunication. It is opened 24 hours for the converting of currency (García‐
Sánchez and et. al, 2019).
Future market: in this market investment is made on the future for the assets and
commodities but the price to be paid is depends upon the current rate prevailing in the market. It
is a complicated market and the risk of profit is high as price can be more in future as compared
to the present. This market plays an important role in economic development and trade as the
person who invest in this predict the market and them make the investment.
MAIN BODY
UK domestic economy:
The economy of UK is highly developed in comparison with other country economy. It is
the sixth largest economy in the world. The economy of the UK has slowed down a little bit after
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2016 but the condition has worse in 2020 after the pandemic of Covid 19. GDP rate has fallen by
2.2 percent in the first wave and after the second wave it lower down by 20.4%. This situation is
very bad after the world war II (Kells, S., 2020). After many measures provided by government
to make their economy stable, then to the consumption of household and the investment by the
investor has fallen down. According to one of the report published by IMF, UK will raise their
economy by 5.3% in 2021. country is also at the number one state in term of production of
defence equipment and pharmaceutical industry and in 10th rank in oil producer. The currency
rate of the UK is at number one with popularity of 47.334%. In the term of purchasing power of
the citizen reside there it is in ninth position. UK is also a fifth largest exporter who export goods
to other country. The economy of the country is much more globalised as it is almost diversified
in all the sectors of the market.
TASK 1
a) Capital allocation within domestic economy
Capital allocation is the method though which business determine the various strategy or
ways through which they can raise their capital either by domestic way or by going
internationally. By raising fund domestically, the main purpose of the business is to distribute its
financial resources in such an effective way that their profit can be increases as well as resources
can be enhance. UK allocate their capital domestically so that they can developed their economic
condition and can grow their countries for future crisis and stability can be maintained. The
allocation of capital decision is taking by the top managers i.e., board director and CEO of the
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business. There are two ways through which UK can develop their economy by so that their
trade and investment can be enhanced.
Infrastructure development: The most useful method through which capital can be
allocate is by building the infrastructure. UK has been regarded as the topmost infrastructure
producer in the world. Investment done by investor in the country’s infrastructure will be
profitable for them and also help in enhancing the trade and financial investment. UK is at
number one position in producing the steam engine worldwide (Kane, 2018). To allocate capital
within the country, UK thinks that building infra is the greatest source as well as help in
economic growth. Government of the country motivate the citizen of the nation to invest in it.
Public investment is their first priority. UK invite both public and private sector to put capital in
it. this is done with the aim of providing best infrastructure program. by doing this the trade
increase as other country start importing for UK the best quality of infrastructure.
Large scale business: UK's government provide various support to those large scale
organizations who need capital for their business. This is done with the motive that it will help in
raising the capital and increase their revenue and profits. They provide various loan, schemes and
subsidiary to the companies so that they can effectively and efficiently increase their production
and can avail resources. This all is done so that it will indirectly help them in developing their
trade and economy will be developed. This support will also attract the investor to start investing
in the company and get more return (QC, 2020).
Few of other ways through which companies can raise capital and contribute in the economy of
the countries is taking helps from various banks of the countries to grant loans at lower interest
rate for their development.
b) Capital allocation of UK within international market:
Capital allocation of UK in international market is that UK's government or public are
investing their capital outside the boundary of the country. This will help the country to diversify
their currency in different sector and expansion of industries. If UK diversify its capital it will
also help them to increase their gross domestic product. Going international and trading in
market is also a riskier. There is uncertainty to the capital invested. Going internally means
distribution of financial resources in such a way that help them to earn ling term benefit and
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increase the factor of stability. Some of the method to allocate capital in international business
are:
Merger and acquisition: Mergers means when two organizations joint hand together
and decide to do business as partner and commence a new business. In simple language two
companies combine and opens a new business. For example: the company of UK combines with
the company of china and open a separate new entity. Acquisition means when a big
organization acquire the small (DeGhetto, Lamont and Holmes , 2020). No separate entity is
open in fact all the profit and losses of the acquired company are now the part of the acquiring
company. For example, a UK firm has acquired the firm of japan. this is the best option through
which UK are enhancing their economy development and trade is also being increased. Through
merger and acquisition gross domestic product of the economy increases and also wealth is
maximized.
Foreign direct investment: this is great initiative developed by UK government. In this
strategy the company of UK invest in another country business entity and takes all the
controlling power. Through this not only the currency of foreign countries is being acquired but
also the knowledge, skills and technology are used so that UK can develop their economy by the
use of other countries expertise.
Dividend: A part of profit which is paid by the company to its preference shareholder are
called as dividend. It is sum of amount is paid on regular basis. In UK, the organisation pay high
dividend to the stakeholders so that more and more international investor start investing capital
in that company. If more capital will invest then this will help in higher production which in
return increases trade and helps in economic development (Dumberry, 2018).
Debt payment: The paying back of money that has been borrowed or lends is known as
debt payment. This is strategy is adopted in UK so that the amount can be paid without creating
liability and increases that debt of the country. If the debt in the country increase then this will
affect the economy as the assets or resources of the country will be used to pay the financial
debts.
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TASK 2
Evaluation of an Economy of your choice
Australia is one of the country whose economy is highly developed and the country’s has
mixed economy. The nation ranks 12 position in terms of nominal gross developed product.
while calculating the purchasing power parity the country holds eighteenth position. In the
context of import and export it is in twenty-five number in exporting and twenty in importing the
goods and services.in the month of June the nation’s GDP is about $1.98 trillion. Australian
economy is much more ruled by the service sector (Singhal, Tripathy and Jena, 2020). The
nation had largest amount of natural resources it is in number tenth position who has highest
estimated natural resource. Currently there is a decline in the mining sector of the country but
then to the economy does not affect in large. The nation is in stable position and is silent. From
1991 to 2020 the country does not experience any recession. Australia stock exchange market is
located in Sydney. It is sixteenth largest security exchange market in the world in context of
domestic market capitalisation. In the Asia pacific zone, the nation is one of the largest nation
who pay interest rate derivate at high rate. China is one of the the country who export and import
most of their goods from Australia. The nation is member of various submits like APCE, G 20,
WTO and many more. In recent time the company has also sign contracts with number of
country to trade freely (Nel, 2018). The countries are PERU, China, Japan, Thailand, New
Zealand. After the pandemic of Covid 19 for the first time the company faces the challenge of
recession. The economy is in the phase of recession from September 2020. The GDP falls by 7%
in the first quarter of 2020. But the per capital GDP of the country is far better than UK, Canada,
Germany etc. It is ranked number ninth in human development index. Australia is the hub in
exporting agricultural product, wool, iron, energy and wheat. The rate of tax to be paid in the
nation is been decided by the federal government. They are responsible for raising the tax
interest revenue for personal income and the cooperate tax or business tax. In the recent research
made by the economist it has been noted that the unemployment rate of the country increases by
0.1 percent to 4.6 % in the month of august 2021 after the crisis. The labour force decreases by
0.7 to 64.5%. The public consumption of the Australia is 21.3% and private consumption is
50.7% in June 2021 ( Fox, Klüsener and Myrskylä, 2019).
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Challenges faced by the Australia in the markets
Industrialization: when human resources of the country are being allocate to serve
different industrialization function that time period is known as industrialization period. Here the
transformation take place in economic and social factor. The process convert various agricultural
economy into manufacturing unit so that economy can be developed and trade enhance. Here the
individual as a labour is placed in the manufacturing process and with the help of machine and
equipment they do mass production. This approach helps in development of the economy and the
trade increases which help in international financing and investments (Muniz-Pardos and et. al,
2018). To solve any problem, the technology and automation activity are being used so that the
problem on depending upon the human reduces and the work can be done through these tools.
There are some of the challenges country faced and are discussed below:
Problem 1 Unemployment rate: Increase in the employment rate of the Australia with the hit of
the pandemic effective very much. It is one of the major challenge that nation faces due to the
policies and rule implemented by the government in the industrial sector. The country has
possessed some of the policies which is difficult for the industry to implement which create
problem to the employees as they are losing their jobs. With the adoption of tech in the process
of converting input into output the human resource are being reduced. Due to increasing in
unemployment rate, the personal income is being reduced which affect the taxes of the country
and the finance of the country.
Problem 2 Unequal distribution of income: If the income is not distributed in equal proportion
that it become a challenge. After the Covid hit the income portion is unbalanced. As most of the
employee lose their job the trade is been shut for almost two months these all crisis creates the
problem of income distribution. The income gap between various sector of the economy had
widen gap which is a challenge for the Australia (Wu, 2020).
Trade policy: The policy which is been developed to control the export and import from
the foreign countries is termed as trade policy. In recent time Australia has signed an agreement
through which they are trading freely. In this rules and regulation are been made so to restrict the
trade barrier. The size of the market determines the rules and is influenced by the domestic and
international investment. This helps in making a good relation between countries so that threat
can be minimized (Jomo and et. al, 2019). The trade policy also helps in decision making
procedure regarding the economic decision. Tax, tariffs and quota are the main factor which
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occurs in trading. Trade policies main aim is to enhance the international trade and revenues for
the country. There are so many trade policies like national trade policy, international trade
policy, bilateral trade policy and many more. They also help in international finance as by
trading in the foreign countries the foreign currency factor increases.
Challenge 1 Taxation: Collecting tax is the main source of income for the government of the
country. With the decline in trade in recent time the rate of paying tax interest increases.
Australia increases their tax which creates heavy burden on the person and also reduce the
economic development. As the repercussion the trade is been reduced and the source of income
also decreases (Behrendt, 2021).
Challenge 2 Limited licensing: Australia don’t provide licence to every companies to trade in
international market. Licensing is limited in the nation. Strict rules and procedure are been made
to get the licensing. Due to which the small companies found it difficult to trade and increase
their profit and they cannot help in economic development. The trading is limited because of
which international finance and investment decreases. Low export and import is also because of
this (Dai, Yang and Wen, 2018).
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CONCLUSION:
From the above topic it is been concluded that international trade and investment is the main
sources to develop the economy. Market expansion can be made by this also it helps in
diversification. Capital allocation can be done by the company through various domestic and
international factor and these factor also contribute in the growth of the country.
RECOOMENDATION:
From the above report it is been recommended that organization should use various method to
get funds. It is also important that international trade is the main source if the country wants to
develop their economy. International investment is also a main source to enhance their finance.
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REFERNCES:
Books and journals:
Ahn, J., 2020. A theory of domestic and international trade finance. Emerald Publishing
Limited.
Trebilcock, M.J. and Trachtman, J., 2020. Advanced introduction to international trade
law. Edward Elgar Publishing.
Roy, J., 2021. The effect of employment protection legislation on international
trade. Economic Modelling. 94. pp.221-234.
Kerr, W.A., 2020. The COVID‐19 pandemic and agriculture: Short‐and long‐run
implications for international trade relations. Canadian Journal of Agricultural
Economics/Revue canadienne d'agroeconomie. 68(2). pp.225-229.
McGovern, E., 2018. International trade regulation (Vol. 1). Globefield Press.
Khattak, M.S., 2020. Does access to domestic finance and international finance contribute
to sustainable development goals? Implications for policymakers. Journal of Public
Affairs. 20(2). p.e2024.
García‐Sánchez, I.M., and et. al, 2019. Analyst coverage and forecast accuracy when CSR
reports improve stakeholder engagement: The Global Reporting Initiative‐International
Finance Corporation disclosure strategy. Corporate Social Responsibility and
Environmental Management. 26(6). pp.1392-1406.
Kells, S., 2020. Impacts of COVID-19 on corporate governance and assurance,
international finance and economics, and non-fiction book publishing: some personal
reflections. Journal of Accounting & Organizational Change.
Kane, D.R., 2018. Principles of international finance. Routledge.
QC, S.P.S., 2020. International investment law: reconciling policy and principle.
Bloomsbury Publishing.
DeGhetto, K., Lamont, B.T. and Holmes Jr, R.M., 2020. Safety risk and international
investment decisions. Journal of World Business. 55(6). p.101129.
Dumberry, P., 2018. The formation and identification of rules of customary international
law in international investment law (Vol. 119). Cambridge University Press.
Muniz-Pardos, B., and et. al, 2018. Integration of wearable sensors into the evaluation of
running economy and foot mechanics in elite runners. Current sports medicine
reports. 17(12). pp.480-488.
Karayılan, S., and et. al, 2021. Prospective evaluation of circular economy practices within
plastic packaging value chain through optimization of life cycle impacts and
circularity. Resources, Conservation and Recycling. 173. p.105691.
Singhal, D., Tripathy, S. and Jena, S.K., 2020. Remanufacturing for the circular economy:
Study and evaluation of critical factors. Resources, Conservation and Recycling. 156.
p.104681.
Nel, E., 2018. Local economic development in South African small towns. In Local
economic development in the developing world (pp. 253-265). Routledge.
Fox, J., Klüsener, S. and Myrskylä, M., 2019. Is a positive relationship between fertility
and economic development emerging at the sub-national regional level? Theoretical
considerations and evidence from Europe. European Journal of Population. 35(3).
pp.487-518.
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Wu, K., 2020. Opportunities and Challenges Faced by Small and Micro
Enterprises. Frontiers in Economics and Management. 1(9). pp.8-10.
Jomo, K.S., and et. al, 2019. Southeast Asia's misunderstood miracle: industrial policy
and economic development in Thailand, Malaysia and Indonesia. Routledge.
Behrendt, L., 2021. Indigenous Australia for dummies. John Wiley & Sons.
Dai, J., Yang, X. and Wen, L., 2018. Development of wind power industry in China: A
comprehensive assessment. Renewable and Sustainable Energy Reviews. 97. pp.156-
164.
Online
Australia Nominal GDP. 2020. Online available at
https://www.ceicdata.com/en/indicator/australia/nominal-gdp.
Australia - Nominal Gross Domestic Product. 2020. Online available At
< https://www.economy.com/australia/nominal-gross-domestic-product>.
< https://www.statista.com/chart/19912/uk-quarterly-gdp-growth>
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