International Trade Finance and Investment: A Study on Capital Allocation and Challenges Faced by UK

This report discusses the background of financial markets, capital allocation within an economy and international markets, and evaluates the economy of the United Kingdom. It also critically evaluates the challenges faced by the country due to industrialisation and trade policies. The report is relevant for students studying international trade, finance, and investment. Course code and college/university not mentioned.

International Trade
Finance and
Investment

Executive Summary
Trading, finance and investing are precise crucial portion of global industry. These aid the fine
running of all the commercial segment in the marketplace at global level. It not solely deals in
the currency but likewise the happening of goods and services among diverse nations. It joints
the entire big economic system at a individual level. This written report focussing in the fiscal
marketplace treatment in these sources whether in domestic or global level. it also supply
knowledge about the mode in which the superior is allocated among the domestic and global
marketplace. This will also analyse the premise of UK marketplace and objection faced by it due
to industrialisation and commerce policy.

Table of Contents
Executive Summary ........................................................................................................................2
INTRODUCTION ..........................................................................................................................4
TASK...............................................................................................................................................4
Discussion regarding the background of Financial Markets.......................................................4
Explanation of how capital allocation takes place within an economy.......................................5
Discussion about how capital allocation works within International Markets...........................6
Evaluation of the economy of the United Kingdom...................................................................7
Critical evaluation on the challenges faced by the country due to industrialisation and Trade
policies........................................................................................................................................9
Recommendations..........................................................................................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Trade finance can be regarded as a fiscal or monetary tool which helps the companies and
organisations in providing support with international trade and commerce. This tool helps in
making the import and export in and around the world easier for the businesses while providing
financial support to the firms (Akhtar, Thyagaraj, and Das, 2017). This report highlights the
international trade and finance in regards to a country. The report discusses detailed background
of financial markets with the domestic and international economy. It also discusses the
challenges that are faced by the country selected due to its industrialisation and trade policies.
The country selected for this report is United Kingdom (UK).
TASK
Discussion regarding the background of Financial Markets
The history of trading has seen many evolution in the field of technology and way of trading.
The first ever way of trading recorded in the history was, Barter system. In this system, the
people had to exchange their goods with the goods they wanted to buy from other sellers. There
was no money used in the barter system which created issues in the free trading in the business.
The emergence of money introduced a better way of trading as it was easier for both the parties
to value their goods on the basis of money. This created a new need of financial markets as this
money needed to be regulated and provided in the hands of people. One section of the society
had many of the monetary resources and other part has none. To create the balance in the society,
the need of creating such an institution which can regulate the money and provide everyone the
equal opportunity to enjoy the money emerged (Orbell, 2017). These institutions were financial
markets. The organisation of financial was not an easy task as these regulated the money
requirements of a territory. Many rules and regulations were required to me implemented for the
regulation of these markets. With these rules and regulations in mind, the need of maintaining
stock markets in the view that the company's stock will be will be regulated and get publicly
safeguarded.
Hence, Financial market is a set of all buys and sellers of the financial instruments. It
consists of money, capital, bond, ownership and derivative market.

Explanation of how capital allocation takes place within an economy
Allocation of capital refers to the process by which the huge capital funds of the country are
allocated to the economy which helps the country be efficient in taking optimum use of the
resources for the benefits of the company. Financial markets are a really important when it
comes to allocation of funds in the company. Financial markets brings together the parties who
want to trade the instruments in the view of earning a return (Sahani, Smith, and Deniger, 2018).
This market helps the new business to raise the capital for its smooth functioning and settlement
in the market. This market also provides the already settled organisations to raise further capital
for future growth prospects of the company. This is done by financial markets by bringing the
sources who have surplus funds into the market and the ones who wants to invest. They
channelize their monetary sources to the companies in the view of them earning ownership of
that company (Tsaurai, 2017). They are provided with a kind of security by the financial market
for the amount they have invested in the company. This security is basically the document
containing details about the ownership and these documents can be sold at any time in the free
financial market if the investor wishes to get back the amount paid. For the investors to not tap
this option, the company focuses on ways to enhance the shareholder's capital. This is done by
providing them with different services and at the end of the financial year the company gives
them the part of the profit to maintain their interest in the business. This borrowing and lending
is done through the use of financial market. In the absence of financial markets, the borrowers
would have faced difficulty in getting the required financial funds. The key players in the capital
allocation system are banking system, domestic market and stock market.
The banks are those places where the process of lending generally takes place. The
financial banks get the deposits from the a pool of investors who deposit their financial funds as
savings in the banks. These people who invest their money are not really aware that these funds
are further used in providing the needy individual or organisations to solve their problems.
Whenever an individual invests his or her money in the bank, these deposits are further advanced
to different people as loan for using these funds for productive uses. By doing this, these
financial institutions control the money flow in the economy (Song, Yu, and Lu, 2018).
The planning and regularization of the financial markets in the country helps the
economy in utilization of monetary resources of the country. There is a direct relation between

the financial market and growth of the economy as these markets work in converting savings into
investments.
The financial markets in the UK are governed by Financial Conduct Authority ( F C A ).
This F C A ensures that all the financial platforms of the country are performing their duties
responsibly, it also regulates these bodies according to the needs of the time. The other
institutions which solves the purpose in the UK are the Financial Services Authority ( F S A ),
The bank of England and the Treasury. These regulatory bodies help the users of the financial
institutions develop trust in the system and have the confidence that their funds are safe in the
hands of these organisations (Hsiao, and Kelly, 2018). These institutions also make sure that
there is enough liquidity in the domestic market of the country. The authority also holds the
power to put charges against people who are not working according to the law.
In the UK, the capital allocation takes place by these financial institutions working in the
country. The financial market acts as bridge between the borrowers and lenders. The enormous
financial authorities regulates these financial markets and if these markets are working according
to the policies of the government.
Discussion about how capital allocation works within International Markets
International financial markets means the marketplace where the major trading is done of
wealth internationally. It means different countries or large traders of various countries trade
their financial assets all over the world. Foreign direct investment, rate of exchange becomes the
part while trading internationally.
The different countries borrow or lend the money to other countries and it is common as
not every country is rich with all the resources. Generally the nations use their currency as the
trading as this helps the country increase the price of their currency (Nemet, and et. al., 2017).
The international trading also takes into consideration the sale and purchase of goods which are
excess with one country and lacking in other. The countries indulge in these markets as they
need to satisfy the demands of its countrymen. These markets helps the investors with analysing
the exchange rate and inflation in the general prices of the country ans how they should invest to
be more profitable. These markets gives an easy space for different countries to get the desired
credit from in and around the world as the market is open to all countries.
In the international marketplace, the capital can be used or allocated either by taking
advances and loans from different countries or by purchasing the securities offered by other

countries. Foreign direct investment is one of the popular ways which attracts the companies of
international level to get the desired investment or invest in other country's business. The
businesses in and around the world are free to extend their businesses in other countries. This is
hugely inspired by the policies of liberalisation and globalisation which introduces the the
concept of world economy as a whole. Other than this, the trading of stocks is also done in these
markets to aid the businesses at international level.
The international markets are taken care by the International Finance Corporation ( I F
C ), The International Monetary Fund ( I M F ), G A T T , World Trade Organisation ( W T O ).
The above authorities regulates all the dealings which are taking place in the world at macro
international level. All the trading in the international markets are done under the governance of
these authorities (Ratny, Fonseka, and Tian, 2019). These authorities formulate policies and rules
which are to be taken care of by the different parties which indulge in international trade. They
are also authorised to put a ban or punish the countries which are not adhering to the rules and
regulations formed by them in the field of international trade. The main aim of formation of
these organisations is to terminate any kind of barrier which might be faced by countries in
international market. These also focuses on allocating the capital in different countries. The
world bank provides loans and advances to the countries in need by lending borrowings which
are the deposits of different countries in the world bank. This is the way capital allocation get
place in the international market.
Evaluation of the economy of the United Kingdom
The economy of the United Kingdom is considered one of the most enhanced and market
familiarized economic system. It counts as 5th place from the factor position of Gross Domestic
Product and 9th as per Buying Power Parity. From the last many years, it has formulated itself in
all facet, whether it is Part, chemical substance, health care or fiscal work. It has affected up to
8th place in the standing of ease-of-doing commerce (Law, Kutan, and Naseem, 2018). The
nation is also performing healthy with heed to exports and imports where it is placed at 5th
figure in both the prospect. The authorities of UK is and has interpreted flooding interest in the
improvement of its economic system. Currently, it is managed as per the value of liberalization
and ordinance of depressed taxation. Since, much period of time, the fiscal policy committee of
Banking system of England is forming out the interest tax considering the total rising prices rate
needed for the encouragement of the economic system. The nation once faced a flooding

recession in the late year of 2000s and for rigging the state of affairs, it started to pass much in
the GROSS DOMESTIC PRODUCT.
To the day, it is patterned out from the economical information that the economic system
of UK after pandemic has advanced by 0.6 % in relation to Gross Domestic Product and 0.7 %
with respect to the employment. On the different hand, there is a growth of 6.4% in mankind
wellness work and professional, technological and scientific work were the 2nd presenter
towards the growing of work sector (Fan and et. al., 2021). Legal action were also going away
weakness because of the alteration in the stamp duty. On the adverse, industry end product was
displaying a depreciative trend with an exclusion of encouragement due to bad atmospheric
condition. The building end product has also enhanced by 1.3 % which was backed with artifice
in expending of fixing and mending.
The imports of fuel also enhanced by 30.4 % when the figure of flights decreased by a
large figure due to the outgrowth of Corona Virus pandemic in and around the world. The
planetary Traveler Study rumored a huge trip in the passengers travelling to other nation.
The economic system of the state has also been smitten due to the Brexit Statement taken
point in the European Union. It in some way, decreased its GDP by approximately 4 %. It
wedged the entire supply chain method and the path and dealings of all the enterprises. The fresh
rules and regulations too stricken the mechanism of the institution. The value of currency of UK
also risen up in scrutiny to the U.S. Dollars (Castell, 2019). In some facet, it has too made some
affirmative effect on several sectors. But its destructive effects are much than the constructive
ones.
Authorities took tons of measures to retrieve the economic system from the consequence
of Brexit and the Pandemic. It backed up workers and self-employed group for playing safe with
the status of unemployment at that time period. It is fetching dozens of act to convey the
economic system of the country back on its path. Though it can be viewed that the economic
system assist in the period of Sept of year 2021, but it is just the sum of assistance that took place
later the covid. In Real, the economic system is playing reduced when compared to the growing
of pre pandemic state

Critical evaluation on the challenges faced by the country due to industrialisation and Trade
policies.
It is the procedure in that the system of the economy changed from cultivation setting to the
industry manufacture of commodities. The activity of producing commodities manually
transformed into majority manufacture with the assist of average machines than to automated
device. To each one nation on the planet utilize this change by earning immense sum of income
and acknowledgement in the global. But at the aforesaid period, there are tons of situations that
countries had to look and tackle for the improvement of the economic system and man kind. For
example, with the outgrowth of device in the industry of commodities, the activity got
automatize (Bailey, 2017). Now, less amount of individual can produce more goods in little
period and lesser difficult activity. This ended up many people idle. This was a captious state
which every state has to battle and in effectual mode. Even today, any alteration in these plan of
action puts its destructive effects as well as constructive impact on the nation. This has been
discussed below in discourse to the UK
Four key issues that are being faced by the UK due to new industrial strategy:
 Brexit: The industrialisation strategy of many UK companies have been considered to
break as an impact of Brexit. Many companies feels that brexit is irrelevant to the UK
companies but many industrialists think that the UK will be able to tackle the issues of
working in a worldwide environment.
 Digitalisation and Technology: Industrialisation has emerged a new want for growth in
the aspects which handle the information and A. I. But the monetary funds which are
required for completion are very low as compared to required ones.
 Skills: This is yet another problem which creates burdens on the strategy. There is a need
of large amount of practised engineers whereas the supply is reduced. The authorities is
not only focusing on brand-new types of ability but also desires to hold in fresh mode of
acquisition among the single people. There are too numerous different idea like new
controller and agency from scholar, training scheme for the intention of reskilling and
many more (Qureshi, and et. al., 2019). Merely many of them got short when in reality
enforced. Such as the assets needed were much than supply for the closing of some work
which was one of the biggest problem in figuring outs many of the activities in action

 Productivity: The fruitfulness of the nation is reduced from the past few years. For this,
the authorities has known five prospect of productiveness – Innovation, Business
Environment, People, Places and Infrastructure (Konara, 2020). They were known to
addition the yield level per time. But in this scheme, the average and little sized
organization were non recognized. They do not have enough credit to hold the flat of
supplying unit in the system. The business relation in this aspect was also altogether
disregard. The another trouble is its execution which is not an easy task.
Recommendations
According to the above-mentioned analysis, following points can be recommended to the
investor:
 The investor has many options through which they can invest, they can invest in a
business of other country by coming into partnership which is working in similar industry
and need players to invest in the business. They can also start a new venture and invest as
an FDI in a new country.
 The investors are advised to not invest in an international business if they does not have
required knowledge and skills to play and earn a profit from these investments.
 The investment that is being done by an investor should be done in instalments as now
they will have the ability to withdraw from the business if the business is not achieving
enough or the interests of the investors are not achieved.
 They can also invest in a secured format like debentures if they want to play safe side.
CONCLUSION
From the above mentioned report, it can be concluded that financial institutions and
markets have a greater impact on the financial state of an economy. These institutions act as
bridge between the lenders and borrowers of the monetary funds. These institutions can work at a
domestic level or at an international level. Finance conduct authority manages all the finance
related rules and regulations that happens in the UK. They are responsible for managing the
liquidity in the economy. These regulatory bodies governs and regulates the working of financial
markets. There are different institutions which govern the working of the international trading in
the financial market place. The report mainly talks about the financial markets of the UK in
relation to the international financial markets. The report further discusses the different factors

that create an impact on financial aspects of the nation. In relation to the UK, Brexit and
pandemic has severely affected the economy of the UK which will take years for the economy to
recover. Other than these, shift in trade and industrialisation also affects the operations of the
countries.

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