International Trade, Finance, and Investment

This study explores the key characteristics and roles of fiscal markets in the context of trade developments. It also examines the major challenges faced by developing economies due to industrialization and trade policies.

International Trade,
Finance, and
Investment

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
DOMESTIC ECONOMY AND INTERNATIONAL TRADE INVESTMENT AND
DEVELOPMENT:.................................................................................................................3
Background of the financial market:......................................................................................3
National economy and capital allocation in the UK:..............................................................4
International economy and capital allocation.........................................................................5
Financial investment and trade theory....................................................................................6
Contributions of international trade........................................................................................7
TASK 2............................................................................................................................................7
MAJOR CHALLENGES FACED BY DEVELOPING ECONOMY DUE TO
INDUSTRIALIZATION AND TRADE POLICIES:............................................................7
BRICS:...................................................................................................................................7
Thorough analysis of Indian Economy focusing on 4 significant factors:.............................8
Key issues India is facing because of WTO's trade policies:...............................................15
Challenges India is facing because of trade-policies setup by WTO:..................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
International Trade pertains to the exchange of goods, items and services with a
consideration from nation to nation which simply called as importing and exporting. Trade a
wider level generally implies to international trades. While financing and funding for these
international trading operations and related business activities are referred to as international
finance and investments (Anderson and et. al., 2014). This study exhibits key characteristics and
roles of fiscal markets (Domestic or International) in context of trade developments. Further an
emerging economy is critically evaluated along with major issues faced by it due to latest trade
practices policies of WTO.
TASK 1
DOMESTIC ECONOMY AND INTERNATIONAL TRADE INVESTMENT AND
DEVELOPMENT:
Background of the financial market:
Financial market relates to marketplace where fiscal assets like securities, preferred
stock, debt funds, futures, currencies etc. are generated and exchanged. In assigning constrained
resources, it performs a vital part in the economy of a country. By mobilizing capital among
participants, it serves as a channel among investors and stakeholders. In addition, by offering
worthwhile details on financial instruments exchanged on the financial market, it minimises
costs. This saves parties' effort, monies and time as they don't have to spend money and funds to
locate possible stock market participants. Such financial markets are majorly classified as Debt
and Equity Market (Anderson and et. al., 2014).
An Equity market is mainly concerned with the trading of securities. Here shares,
securities are issued into the market as well as further trade may be via stock exchanges or any
OTC markets. This is the most critical area of the financial market since it allows corporations to
issue capital and provide a simple and accessible framework for small and large investors to
make investments in different securities (Armijo, 2012).
While a debt/bond market, implies to market which are dedicated towards promoting
investment in debts/loans which they can buy or sell as securities. No specific exchange has been
setup for exchanging these bonds/debt securities. Mostly transactions take place among large
institutions, brokers or investors (Akhtar and Jones, 2014).

National economy and capital allocation in the UK:
Banking System:
1. Role of central bank: A central bank implies to a national independent body
conducting monetary & fiscal policy, regulating banking institutions, and offering financial
facilities along with economic analysis. Its aim is to deflate the exchange rate, maintain
employment, and control inflation. Bank of England is the central bank of the UK, which
controls all financial and monetary functions of the country and regulates all banks/financial
institutions (Armijo, 2012).
2. Monetary policy: UK's monetary policy is being determined by a Committee named
Monetary Policy Committee (MPC) and mainly governed by the Bank of England. This
committee is independent it fixes and changes interest rates with the aim to minimise the
country's inflation rate. Bank of England determines the base rate which is the rate at which
different banks get their loans from BOE. Altering the base rate affects entire economy's interest
rates (Chen, 2015).
3. Regulations governing the financial system: BOE the central bank of the UK along
with MPC issue different rules and regulations to regulate the entire UK's financial system.
Banks are required to follow these regulations. These bodies also have power to impose penalties
in case of non compliance of these regulations issued by them (Banks of UK, 2019).
Domestic money market
a) Savings (Short term): The saving facilities of banking institutions like ISA accounts, flex
accounts stands to benefit small companies and individual people. The bankers are also rising
saving rates to fit the market levels in a suitable layout (Chow, 2013).
b) Loans (Long term): In the UK, the functional potential of long-term mortgages is enhanced
by approx 66 percent of residential real estate buyers. Excepting the overly heavy non-crash
periods of entire mortgage, the raising of collaterals is a major step towards property ownership –
as well as personal loans (Vijayakumar, Sridharan and Rao, 2015).
Stock markets
London stock market: The London Stock Exchange (LSE) is UK's leading stock market. And
Europe's greatest. Originating in 1773, the local exchanges were integrated into Great Britain and
Ireland's stock exchange in year 1973, eventually designated as London Stock Exchange (LSE).
The LSE establishes cost-effective exposure to many of the biggest and perhaps most accessible

cash reserves in the world via its primary exchanges. It is host to a wide range of industries and
supports listed corporations with digital stock dealing (Desierto, 2015).
AIM (London stock exchange for small business): The Alternative Investment Market (AIM) is
London’s Stock Exchange (LSE) sub-market aimed at helping smaller firms to access stock
market's equity. Through participating in public exchange with far more broader legislative
independence relative to the main market, AIM helps these corporations to acquire money or
raise funds (Ge, 2011).
International economy and capital allocation
International capital markets: International capital market implies financial system that trans-
nationally borrows and invests funds from states, corporations and entities. It is equivalent to
capital market that requires domestic lending and investment by government bodies, corporations
and individuals. Between those who have unnecessary funds as well as those with impaired
funds, all systems take place.
1. Commercial banks: There are 2 significant international-commercial banks that exist
which invest in higher capital markets and Securities are: ICB financial group and Swiss Finance
Luxemburg AG. The saving amenity laws and regulations in such banking institutions are very
stringent. Getting less risk and highly secure stocks are major benefits in opening a saving and
deposit account in these international commercial banks. Account-holders with accounts stay
secure in case of any sort of financial risk (Chow, 2013).
2. Bond Markets: These are also termed as debt or credit markets its commercial
enterprises or fiscal marketplace in which members can easily raise new debts, called primary
debt markets, or trade in debt bonds or stocks, called secondary debt markets. It is commonly
formed of different bonds; however it may be bills, notes, and any authorised instrument
(Swenson, 2012).
3. Foreign exchange markets: These markets are mainly associated with buying and
selling of foreign currencies of different nations. Investors may invest in any currency and can
make gain with help from fluctuation in rates of foreign currencies. This is a most volatile
market as foreign currency rates fluctuate with minor events in the global and domestic economy
(Frederic S. Mishkin, Stanley Eakins, 2012).

4. Global stock market: Refers to a cluster of different stock markets like NASDAQ or
US markets, Asian Markets and European stock-markets (DAX, FTSE and CAC). It combines
different indexes from different stock markets together (Vijayakumar, Sridharan and Rao, 2015).
5. Derivatives: A derivative is a financial arrangement dependent on any underlying
securities. The purchaser offers to buy assets at a particular price on even a particular date.
Derivatives e.g. coal, petrol, and silver, is substituted for items. Exchange rates are yet another
investment option, almost always U.S. dollar. There are portfolios or bond-based options. Still
others using rates, like interest on Treasury bonds or Note for 10 years.
6. Non-bank financial institutions: It is also recognised as non-bank financial companies
(NBFC). These are financial institutions or corporations which don't have complete banking
license and not primarily governed by any international/domestic banking authority or regulatory
federal agency. These facilitate all banking and financial services or facilities like investing,
savings on a contractual basis. Pooling risks and brokering. Instances of such corporations
involves insurance corporations, cashier's cheque issuers, pawn shops, cheque cashing turn up,
lending, currencies exchanges and investment advisory companies (Shenkar, 2012).
Financial investment and trade theory
Ricardian theory:
The English classical economist named David Ricardo initially formed a theory in year
1817 with an aim to provide a complete explanation upon nature/origin as well as economical
rent. He applied rent and economical aspects to evaluate specific issues. Ricardian's theory
provides that agriculture and related activities are core variable in order to enhance overall
economical growth level. This theory mainly classifies effective capital allocation and funding
concepts into 3 major parts: workers, landowners and business or commercial.
Opportunity cost: This theory relates agriculture sector to term opportunity costs which
means that how much individual or business entities can earn if it operates with full capacity
during a specific period of time. Ricardian's theory's mainly focuses on what the effect has on a
country's economy (Swenson, 2012).
Comparative advantages: In context of comparative advantages theory demonstrates that
in case 2 nations are able to produce any specific 2 commodities and are engaged in free market.
Then each nation should enhance their overall consumptions through exporting commodities for

which has such comparative advantages while making import with other commodities except that
are differences in their labour productivity rates (Shenkar, 2012).
Contributions of international trade
Regional trade agreements: A Regional Trade Agreement (RTA) refers to a treaty which
defines trading rules with respect to all signers among two or more governing bodies Instances of
different regional trade deals involve CAFTA-DR, Asia-Pacific Economic Cooperation (APEC),
European Union (EU), North American Free Trade Agreement (NAFTA). Negotiations in so
many trade/business agreements currently go outside of tariffs to cover-up multiple policies areas
that impact international trade in products and services, along with sub-border legislation like
competitiveness legislation, public procurement guidelines, intellectual property law etc.
Investment treaties between states: Investment treaties implies to agreements for sealing with
investments produced by people or firms from some other as state by state. They are managed to
negotiate bilaterally, multilaterally and sector-wise and can be either a hang-alone treaty or
portion of free-trade agreement. Most of such instrumentation produce clauses that enable
settlement of conflicts between investor and state under auspices of ICSID or any other alternate
dispute settlement structures (Lin, 2011).
TASK 2
MAJOR CHALLENGES FACED BY DEVELOPING ECONOMY DUE TO
INDUSTRIALIZATION AND TRADE POLICIES:
BRICS:
The nations of BRIC are heterogeneous. They vary in their fundamentals, economical and
geostrategic attributes. India and China are categorized by managed capital and fiscal markets
and huge proportions of their village or rural population. Their infrastructure models are based
on different export operations, while principally natural or non-renewable resource-based
economies as well as good commodity exporters are Russia and Brazil. Their capital markets,
while evolving at very different times and at different rates, are much more open and subject to
relatively less state control at the moment. These countries capital markets, whilst being
developed at distinct times as well as at varying rates, are far more accessible and relatively have
lower federal controls (Swenson, 2012).

Thorough analysis of Indian Economy focusing on 4 significant factors:
a) Production/ Manufacturing:
For developing economies like India manufacturing and production growth is a
significant aspect. India's manufacturing/production industry has evolved as a significantly rising
industry due to the nation's huge population. Sectors and wise investments have been on the rise
and campaigns such as' Make in India' are aimed at transforming South Asians nation into a
regional hub for manufacturers. The sector's production capacity growth level in financial year
2017 reached over approx14 percent. In the Sep. month 2019, manufacturing & production in
country India dropped by approx 3.90% over same month in year 2018. Between year 2006 to
year 2019, such manufacturing growth in country averaged approx 5.84%, hitting highest of
approx 24.30% during June,2007 as well as a lowest of -9.10% in Feb.2009
(Manufacturing/production Industry Growth. 2019).

(b) Inflation in Country India:
In India retail-price inflation percentage ratio has been reached to approx 4.62% during
Oct. month in year 2019, also highest as compare to preceding month's i.e. approx 3.99% which
is more than the market's expectations of approx 4.25%. Further notable aspects here is that
Inflation reached more than the RBI's midterm targeted percentage i.e. approx 4% for first-time
since month of July,2018, pursuing latest cut-down in rates of interest.
Here also considerable Food prices have been increased approx 7.89% during Oct. while
it was approx 5.11% in Sep. month, that is its highest yearly increase since 2016,July. In
addition, index of beverages/foods index increased upward approx 6.93%, simultaneously with
primary upward pressure level due to vegetables i.e. approx 26.10% because onions and tomato
rates have been increased due to climate changes, unseasonal rains, interruption in supply-chain
and acquiring limitations on sellers (Inflation Rate. 2019).

(iii) Employment factor in Indian Economy:
Due to expansion of structured private sector's jobs, there has been a slight increase in
proportion of normal and structured employment. Despite an increase in government/public
sector, a proportion of different informal jobs have risen. Meantime, micro and
small enterprises of unorganized areas still generate pre-dominant portion of employment
without any structured or published contract of employment. In India the unemployment rate
stayed at same level I.e. approximately 2.55% during December 2019, as compared to previously
reported percentage of 2.55% during December 2018. Such rates are updated annually,
with average percentage of approx 2.66 percent during Dec year 1991 to Dec. 2019.
During December 2003, figures reached its highest of around 3.18 percent and a lowest of
about 2.27% in 2008, Dec (Unemployment Rate. 2019).
(iv) International trade (Major exports and imports):
Indian Foreign/International Trade involves all exports and imports from and to India.
Related activities of international trades are handled at Central Government's level which is
governed by a regulatory named: Ministry of Commerce and Industry. International trade of
India has been reported at 48.8% of India's GDP in 2017.

India's import volume index was 563 points in year 2016 (The largest trading partners of
India. 2019). India's top trade partners(Nations) with their aggregate trade including exports and
imports in US dollars(Billion) for F.Y. 2017–18 as listed below:
India’s participation in international trades was approx 2.1% i.e. around 481.74USD
billion related to exports while approx 2.6% i.e. approx 600.62USD billion in respect of imports
during year 2017.
Exports during May month in year 2019 were approximately 29.99USD billion while it
was approx 28.86USD billion during May,2018, reflecting a favourable growing of approx
3.93%. In Indian currency such exports are approx Rs.2,09,280.62crore during May,2019 while
it was around Rs. 1,94,928.45crore during May,2018, indicating favourable growth of approx
7.36% (Imports: India. 2019).
While Imports are USD45.35billion or about Rs. 3,16,448.93crore in May 2019 which
was approximately 4.31% high in $terms and around 7.76% higher in Rs. terms as comparison
with imports of around USD43.48 billion or around Rs. 2,93,660.48crore during month of May
in 2018 (Exports: India. 2019).
Illustration: List of the largest trading partners of India

Illustration: Exports during current year
Il
lustration: Exports figures of 5 years

Key issues India is facing because of WTO's trade policies:
WTO has been replaced or superseded GATT. The core object of WTO is
implementation of new world-trade agreement and to encourage multilateral trades. Further it
promotes free-trade by get rid of different non-tariff and tariff restrictions and barriers (Paul R.
Krugman, Maurice Obstfeld, Marc Melitz 2014).
Illustration: Imports during current years: India
Illustration: Imports figures during 5 years: India

(I). Political Stability in India: Some of the trade policies of WTO involves increasing trade
with neighbour countries, which lead to disagreement with policies of ruling government. As in
India, PM Modi's government seems not in support of trade with Pakistan and also impose tariffs
on trade. In this context after 2013 political stability index has been improved and it reached to -
0.83 points in year 2017 (India: Political stability. 2019).
(ii). Labour productivity- India:
India's Labour Productivity percentage has been declined by approx 5.52% p.a. during
December in year 2019, while such growth in PY was about5.80 % during same month. Average
rate of December,1992 to December,2019 is around 5.30Percenet. These figures are achieved
highest appox9.74% in 2010,December and lowest around1.32% in year 2002. This rate is
computed by CEIC using GDP p.a. per individual employed. Recent figures shows that India's
Population has been reached at approx1332.00 million in 2019, March. While Unemployment
Rate is stable at approx2.55% in 2019. Due to WTO's policies India's manufacturing sector is not
so much favourable which directly/indirectly affects (Labour Productivity Growth. 2019).

(iii). Environmental Concerns in India:
With second largest population tag India have major environmental issues like Air
pollution, Noise pollution, Land Pollution etc. Different nations have concerned with different
environment-related attempts under WTO policies and framework. Which negotiation in tariff
cut down with respect to environmental services/products, Requiring much more clearness on
inter relationship among existing WTO's rules as well as particular trades-obligations in
environmental (multilateral) agreements and requiring disciplines upon subsidies available for
fisheries. India's policies regarding environment conflicts with WTO's policies at certain points
(Environmental Issues: India. 2019).
Challenges India is facing because of trade-policies setup by WTO:
(a) Recent trade policies: India's relation with neighbour countries like Pakistan, China are not
so much good. But WTO's objectives and policies are do not allow countries to take revenge
with rivalry countries through imposing heavy tariffs. WTO's pressure to reduce tariffs and to
promote trade with neighbours affects India's import/export proportion with nations which have
good relations with India. Some time policies of WTO hurts foreign companies operating in
India. Further Made-in-India campaign is also conflicts with WTO's trade policies.
(b) Approaches to trade agreements:
Trade agreements which are in nature of Bilateral are not acceptable under WTO's
Agreements. WTO's objectives involves promotion of multilateral agreements which restrict
Labour productivity- India

India to enter into any Bilateral Agreements with countries which are not in accordance with
such policies. Some time these restrictions on Bilateral agreements with friendly countries
creates barriers for development of nation and industrialisation growth.
Recommendations:
Following are some key recommendations, as discussed in below points:
 Effective working and operational structure dedicated towards commercial,
infrastructural as well as financial services through global organisation, financial bodies
and other international fiscal institutions.
 Effective implementation of WTO policies which leads to increase in foreign investments
in country.
 Environmental concerns and political instability are main issues before country so put
more emphasise upon these areas for overall economical development.
 India should focus on industrial and infrastructural developments to minimise economical
dependency on other countries.
CONCLUSION
From above study it has been articulated that understanding of different aspects of
International Finance, Trade and Investment is significant to predict future performance and
growth of World Economy. Also WTO's policies are significant to control and manage wider
international trades and commercial exchanges. These policies may directly and indirectly affects
Economies of different nations favourably or unfavourably.

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