International Trade and Finance: Capital Allocation and Market Analysis

This report discusses international trade finance and investment, types of financial markets, capital allocation within domestic and international markets, and evaluates China's economy in relation to financial trading. It also explores the challenges faced by China in industrialization.

International Trade
Finance & Investment

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Types of financial market............................................................................................................3
Capital allocation within domestic economy...............................................................................4
Capital allocation by UK within International Market................................................................6
TASK 2............................................................................................................................................8
Evaluation of China economy related to financial trading..........................................................8
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
International trade finance is approach that helps in structuring complex trade transaction
to the stakeholder that involves importers, exporters and trading companies. This known as ITF
experienced team that supports in providing trade finance globally and creates flexibility and
innovation (Abeliansky and Martínez-Zarzoso, 2019). In this report, it is discussed about the
international investment that relates to certain types of investment proposal of in which investor
diversify his portfolio by purchasing various financial instruments like share, mutual bonds to
acquire ownership in different companies across the globe. It provides the opportunities to
capitalize the performance of foreign economy. In this report it is discussed about the different
financial market in the country and the way in which they allocate the domestic economy and
international trade for the purpose of investment and development purpose. It is being discussed
other country economy and its challenges faced by them according to the industrialisation and
trade policies
TASK 1
Types of financial market
Financial market refers to the marketplace where the activities related to creation of
different financial assets such as bonds, share, commodities, currencies and derivatives. It
depends on the economy of the countries that used to traded daily in the financial market some
examples are National Stock Exchange, New York Stock exchange etc. These are independent
regulatory bodies with strict bodies and rules. Types of financial market are as follows-
 Money market- This type of financial market for lending or borrowing short term loans
with maturity of less than 1 year. They used to deal with money market such as Treasury
bills, Commercial Papers, Certificate of deposit, bills of exchange.
 Capital market- This types of financial market deals with trading of stocks and bonds.
This market used for the to lending and borrowing of money for long-term and its spilt
into primary and secondary market (Accominotti and Ugolini, 2019). Many companies
issue shares in the form of equity or preference shares or fixed interest- bearing bonds in
the primary market.

 Derivatives market- This types of financial market concern with te trading of future,
options, forward contracts and swaps. This were derive their value from underlying asset
that used to monitor the financial risk.
Background of financial market
Financial market are important part that now consider by all companies to invest in many
ways which helps them to achieve their goals and objectives in proper manner. Banks, Capital
and money work in different way so that they able to allocate their capital effectively. Some
forms of money are Commodity money, Fiat and Fiduciary money.
Purpose of money
The main purpose of money is to use the best way to invest them to make maximum or
optimum use of money in order to regulate the economy the in appropriate manner (Ahn, 2020).
This helps in ensuring that demand is adequately meet with the supply of money.
In the context of UK, financial market is greatly present in the different organisation and
all of them were using them effectively to get the benefits from it. They used to contribute to it in
order to fulfil the better productivity in management. In the year, 2007 country has face financial
crisis, where market go wrong and cause big problem and this make market fragile. This meant
for economic lower and banks are less willing to provide loans to household. So,here financial
market has played important role when it is being necessary to provide information about
financial market and people are start talking and understanding what is happening. Managing
market operations, where buying and selling the things will help the government to control the
situation of economy and that gives better results. The financial market helps the market in long
term as their consequences were visible after specific period of time. The right usage of them
will definitely going to help them in boosting their economy and after that many companies were
start using financial market. It covers around 20% of global and gives higher results in rate of
return on its capital apart from other developed economies. This is plays important role in
managing the private and investment banking and London has branches and subsidiary of 254
foreign banks that is more than New York.
Capital allocation within domestic economy
Domestic allocation of capital in UK will help the company in understanding the proper
use of money in the economy and that become important from the point of view every nations. In
this report the economy that is taken is UK, which id developed country with the Nominal gross

product of 2.978 trillion and US has 2.638 trillion dollar in the year of 2020. In the country, it is
notice that 837 billion in terms of exports in terms of US dollar in 2019 and imports shows as
amount of 876.6 billions US dollar in 2018 (Alexandridis and et.al., 2018).
The company trading under its economy is shown is known as domestic trading. Fund allocation
includes dividing portfolio in many ways such as cash, bonds and shares. This is important task
that deals with distributing of capital allocation and helps in enhancing the financial stability and
also supports the brand image. Following are the ways in which it allocate the capital in
following manner-
 Infrastructure- In the UK, they have rank in 11th position out of 141 countries in terms
of stability and quality in the year 2019. UK is spendings were less than other G7
countries over past decades. UK is always focuses on development of infrastructure in
private and public sector in the highest value of pound 18.9 billion in the year of 2016
and in the sector of private it is recorded as 11.4 billion pound. This is important for the
nations to always focus on boosting the productivity and develop the employment in the
country. Proper allocation in this sector will also leads in GDP growth and living
standards in the country.
 Industrial policy- UK government is actively pursuing the policy of investing industrial
sector and its sector, this policy is likely to favour capital intensive, knowledge based
sectors that has shown the capacity of development (Auboin and DiCaprio, 2017). This
increase the UK competitiveness related to labour intensive countries. This is important
to rebalance the economic analysis geographically and for that they support the
opportunities that any organisation wants to grow at their best level and identified sectors
are Electronic and Optical products, Motor vehicles, Machinery, Food could provide best
regional opportunities.
 Investment in manufacturing- The topic in UK investment is always depends on the
manufacturing process and that leads to growth in the economy and gives better options
for them to provide better results. In this sector, there large hope for the economy as it
facilitate in providing better and constant growth in the nation. This gives boost in other
sector of economy as well and it leads to maximum growth and also helps in providing
better growth in overall country. According to other developed country, UK has seen
drastic change in the development of manufacturing sector as they realise the importance

of this sector. UK government has also introduced certain rules and polices for the
betterment of the sector and this is important to realise their role in the economy. This
will help in foster the living standard of labour that used to work in the factories.
 Investment in small, medium organisation- Small business and start-ups are the main
foundation of the growth of economy and they need to be clearly taken care of by the
government of UK. Proper capital allocation in these organisation is essential by the
nation as they were always gives the high returns with less investment (Bhogal and
Trivedi, 2019) As, they are providing many benefits to the country such as employment,
capital formation and innovation in their sector. Some necessary development are very
essential for the economy as they are providing numerous results to the country. Many
policies and rules were formulated in order to strengthen their position and working
condition in order to give best output. UK government has implemented many regulation
related to the exemption in taxes and provide subsidy in some way or other. This is key
functions of MSME to provide the overall development in the economy and also increase
the standard of living among the people. This sector provides largest income to UK
economy and helps in development and innovation and other benefits to the country.
Adequate capital allocation in the sector will help in foster the growth of industrial
environment and build the image of country in terms of other developed nations.
Capital allocation by UK within International Market
International market concern with market that is expanded outside the country r
boundaries in which company operates their business activities. Some companies are properly
executing their functions such as selling and buying the securities with other countries to grow
its business. This market has shown extensive growth in past years and it is developing more
nowadays in many countries (Sysoeva and et.al, 2018). The important way to enhance this
marker is through certain methods and policies. Trading become necessary to tool to develop
economy of nation and gives many opportunities to other markets for domestic and international
firm in their growth. In the context, UK, is one of the strongest economy in the world as it is
trades internationally successfully and become inspiration for other countries as well. There are
many ways through which UK economy has increase its capital allocation in international market
after realising major scope and growth in the country. It become necessary to understand the
importance of capital allocation in other financial market as they foster the growth of nation and

leads to certain development growth. There are some sources through which they allocate their
capital in international market as follows-
 Merger and acquisition- Merger and acquisition refers to the consolidation of
companies where they have two different two terms such as Mergers and Acquisition
(Crinò and Ogliari, 2017). Mergers concern with combination of two companies and
acquisition states that one company is purchase by other companies. In the context of
UK, this is one of the major aspects in corporate finance world. In this method UK has
done capital allocation in different other countries in terms of selling or purchasing the
companies from different nations. So to develop the economy at larger scale the need to
do this merger and acquisition is must. It helps in understanding the nature and
environment of international tactics of companies that used to operate in large scale. This
is important for the point of view of development of infrastructure of industrial economy.
After the issue of Brexit in the UK, there is declining in the process of merger and
acquisition and that increase inefficiency in corporate sector. The need of proper capital
allocation of merger and acquisition of the organisation is very essential for the economy.
For that UK, has developed major policies and rules to adequately monitor the activities
of merger and acquisition in the country.
 Investment in developing counties- This practice has been increase so much after
knowing the benefits of it in long term period. This is very important to understand that
developing countries has so much potential that they will give outstanding result to the
economy who has invested into it (Goldfarb and Trefler, 2018). In the context of UK,
they have turned out be more serious in investing other potential developing countries.
UK, has invested in some big projects in other nation which will be fruitful for the
country. In adequate capital allocation in international market, they will able to provide
more profitable output. In some developing nations there is lack of capital and they need
a investor to invest in their project. So, developed countries are playing essential role in
this where they properly analyse the profitability of concern investment and than allocate
their capital into that project. UK has largely showing its interest in allocating their
capital where they can earn profit in long term period and increase the relationship with
that country in future. This practice has become essential from the point of view of

improving the better and healthy relations and also for the better option of investing their
capital.
TASK 2
Evaluation of China economy related to financial trading
Overview- U.K is largely dealing in international market and actively involves in this
activities to ensure its political position in the global level. In 1999, China was the UK's largest
export market and now its comes to the 6th place. Last year it has been recorded as the highest
export that is 23.4 billion pounds and it is increasing in the row. China was UK's 4th largest
source of import which is reported as 49 billion pound (Hamanyati, M., 2017). So, there is very
profitable and long relationship with these two countries and become the leading component in
terms of trade. The major effect is likely on the UK higher education and the role of UK as hub
for Chinese corporate companies. Apart from, China also play important role in the UK
infrastructure and it also involves the nuclear power capabilities. In recent years, it is observed
that China has been active profile acquisition in the economy of UK that results in billions of
pounds going out of Britain. In terms of technology also China's thirst for high tech UK
companies as it take over major profitable companies.
About China economy
Economy of China is mixed socialist market economy which is composed of state-owned
enterprise and domestic and foreign business. China is world' largest economy when measured
by purchasing power parity. This also world second largest creditor in the world after Japan. In
the year 2020, it is accounted as GDP of US$15.42 trillion dollar. China is largest manufacturing
economic and exporter of goods and fastest growing consumer market and 2nd largest importer of
goods. This play important role in the international trade and net importer of services products.
Some of the challenges faced by China in relation to the industrialisation are as follows-
China has seen economic boom and progress in their economy (Keenan, 2019). There is
continuous progress in the manufacturing and industrial sector of china due to industrialisation
and trading policy but still their economy is facing challenges and problem which are as follows:
 Tax and revenue expenses- In the context of China, there is falling in the GDP as it
become huge problem because it is communist country and centralized economy. Falling
in the tax revenue and rising expenditure has created shortfalls which need to be filled by

borrowing money. So, this challenge is effecting the overall performance of nation and
leads to big challenge for the country to face.
 Manufacturing and banking viability- In this context, China government has planned
many investment in this sector but since most of money was loaned out by state bank and
banking system is reeling this problem. Some China is managing some non performing
asset as this become necessary to understand the problem of manufacturing sector.
 Falling in GDP- Chinese economic growth has been unprecedented as its its economy is
growing over 10% per annum for couple of decades now (Kesharwani, Sarkar and
Oberoi, 2019). Chinese economy is centrally planned and it is also planned by the
government. Some of growth has been very defined and it is essential for the country to
understand the need of proper planning.
 Weak domestic demand- The global economic downturn and great power competitive
has entered into new phases. In the year 2020, the demand of domestic in the country has
been decreasing and that negatively impact the economy and lower down market
confidence. Also external demand is reduces and global economy is set to sump. In the
overall competition, there is major fall in the nation and undermining its position. To
overcome this challenge china can increase in production investment and consumption in
goods and services. China needs stabilize for the company and this greatly reduces the
growth.
 Rise in food prices- The prices of pork and other street food is increasing and that
overall weaken the overall demand. This impact negatively on the market as it largely
influence the livings standard of people. This promote the financial risk for the labour
who are greatly depend on that and that increase multiple challenges for the company.
 Lower labour rates- This is also important in the context of China, that it largely involve
in the manufacturing sector where labour are working in the factory (Mayer and et.al,
2017). This become challenge for the labour that increases in the work load and reduces
in their wages as lead to big conflict companies and workers. China is always been
popular for their lower labour cost but it become its problem after the growth in
economy. So, it become essential problem in the context of labour as they were not
getting paid fairly and equally and create problem in their productivity and growth.

 Inefficient Labour Unit Output: Unit labour output is important factor in order to
measure the production capacity of a country. It is measure as average cost of labour per
unit with the output produced. Unit labour output of china is insufficient in compare to
other developed country due to inefficient manufacturing technology. China is improving
their labour unit output year by year but they are not capable to match the developed
countries.
 Imperfect Standard System of Industrialization: To enable industrialization, a
standard system need to be developed. It will enable network and information
transmission between different company. But china is still far in safeguard measures,
upgrading and transforming manufacturing industry (NGUYEN, 2020). They also face
problem in control, management, inspection of quality, providing training to employees
and other systems. To enable this system, country need to develop different technology to
upgrade their manufacturing and production process.
 Weak Innovation Capacity and Lack of Core Talent: Driving force to measure the
ability of country's economy is innovation and up-gradation in technology. Innovation
helps in research and development investment. China's economy is facing challenge
related to competition in market and strength of economy in technology and innovation.
In comparison of different country, china is still slow in adapting technological
innovation.
 Poor Construction Of digital Infrastructure: China has built a network system in their
economy but it does not get popularity like developed countries. The network does not
get speed to reach people in rural area as there is difference between popularity of
network in rural or urban areas of china (Schram and et.al., 2018). They are successful to
enable network system in developed area of the country but they are fail to enable it in
rural areas. Network distribution should be implemented in rural area in fast and efficient
way.
 High Energy Consumption and High Pollution: As there is increase in number of
factories and production, the consumption of energy is also increased. There is relation
between energy consumption and pollution. Through industrialisation china's economy is
facing many economic and social changes. In china, production and consumption of
energy is increased unexpectedly with pollution in the environment, but it still result in

lower valued output. It will lead to decrease in the competitiveness of the product in price
at market place.
CONCLUSION
From the above report it is concluded that International market is the method in which it
gives opportunity to the investor to maximise its profit and return from giving chances to invest
in foreign economy. This is very important strategy in which it facilitates in diversify the
portfolio by purchasing and selling of shares, mutual funds and other instruments. In this report it
is discussed about the different types of financial market such as Capital market, Derivative
market and Money market. It is analysed that UK has allocating its capital in domestic in
following ways such as Infrastructure Industrial policy, Investment in manufacturing, Investment
in small, medium organisation. Apart from that selected company has allocating its capital in
international market through Merger and acquisition, Investment in other country. It is being
analysed that certain challenges has been faced by China in terms of trade policy and
industrialisation and how it is affected its economy.

REFERENCES
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