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International Trade, Finance and Investment: Assignment
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Added on 2020-04-15
International Trade, Finance and Investment: Assignment
Added on 2020-04-15
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INTERNATIONAL TRADE, FINANCE AND INVESTMENTInternational trade, finance and investmentName of the Student:Name of the University:Author Note:
INTERNATIONAL TRADE, FINANCE AND INVESTMENTExecutive Summary:Evaluation of financial market in allocation of capital across countries has been demonstrated inthe report. Capital allocation analysis of domestic economy and emerging economy that isUnited Kingdom that is Britain and India has been done. Analysis has been done using variousaspects such as stock market, investment, borrowing capacity and asset management ofcountries. Capital allocation within international market as a whole has also been discussed. Inthe later part of report, some challenges faced by emerging economy resulting from its tradepolicies and industrialization have also been discussed.
INTERNATIONAL TRADE, FINANCE AND INVESTMENTTable of ContentsBackground of financial markets:....................................................................................................4Capital allocation within domestic economy (United Kingdom):...................................................5Capital allocation within international markets:............................................................................10Evaluation of emerging economy (India):.....................................................................................12Critical evaluation of challenges that country faces due to industrialization and trade policies:..15Conclusion:....................................................................................................................................17Reference lists:...............................................................................................................................18
INTERNATIONAL TRADE, FINANCE AND INVESTMENTBackground of financial markets:Financial market is place where financial assets such as securities are exchanges, createdand transferred. Financial system of any economy works through financial market by facilitatingallocation and creation of liquidity and credit, assisting balanced economic growth progress andserving as intermediaries for savings mobilization. There are four components of financialmarket and this comprises of capital market, money market, credit market and foreign exchangemarket (Arrfelt et al. 2013). Capital market- The long-term investment of economy is financed through capitalmarket and transactions will be placed for over years in this market. Money market- Banks, government and financial institutions mostly dominates thismarket where funds are available for periods ranging from a day up to years. Money market is adebt market for highly liquid, low risks and short term instruments. Credit market- Credit market is a market where financial institutions, banks and nonbanking financial institutions provide long-term, medium and short term loans to individuals andcorporations. Foreign exchange market- This market is one of the most integrated and developedmarket across globe. Requirements of multi currencies in economy are dealt by foreign exchangemarket where exchanging of currencies takes place. Fund transfer in this market takes placedepending upon exchange rate (Vollrath 2014). Financial instruments are other constituents of financial market that is a claim againstfuture income of individual or institutions. Financial market instruments are listed below:
INTERNATIONAL TRADE, FINANCE AND INVESTMENTMoney market instruments- These are instruments that is financial assets that can beconverted into money at minimum cost. Some of important money market are call money, termmoney, treasury bills, commercial paper and certificate of deposits. Capital market instruments- These instruments are generally for long-term investmentsand this comprise of preference shares, equity shares, non convertible preference shares,preference shares in equity segments. Instruments in equity segments involve zero coupon bonds,debentures and deep discount bonds. Cash instruments- Cash instruments are readily transferrable and their value is deriveddirectly from market. Deposit accounts, loan and receivables and other financial assets are someof the cash instruments. Derivative instruments- Value of derivative market instruments are derived fromunderlying entities such as index, assets and interest rate. Exchange traded derivatives and overthe counter are some of the derivative instruments. Hybrid instruments- Hybrid instruments have the features of both debenture and equitysuch as warrants and convertible debentures. Capital allocation within domestic economy (United Kingdom):The largest financial sector of European Union is financial sector of United Kingdom thathelps in capital allocation improvement within the country. In the current economy, extent ofstate ownership is viewed to be inversely related with efficiency of capital allocation andpositively correlated with information that is firms specific. There are three easy in which capitalallocation improvement can be done in economy. Firstly, improvement in capital allocation canbe witnessed due to falling state ownership. Secondly, synchronicity in stock price is less where
INTERNATIONAL TRADE, FINANCE AND INVESTMENTcountries restore specific information in individual stock price. Lastly, strong minority rights ofinvestors help in allocating of capital in a better way. United Kingdom has highest score inregard to investor’s minority rights. The largest market that makes up capital market of UK ismanagement of assets and asset managers have the changing role of debt investors in context ofchanging landscape of UK’s capital market (Williams et al. 2017). One of the significant facilitator of funding of UK Company is function of capitalallocation of asset management firms. This helps in contributing to long-term productivitygrowth. The potential for long-term holding has facilitated successful capital allocation withinUK market and this also helps in long-term engagement of companies. Changing landscape ofcapital market in UK has enabled existing companies to reduce their cost of capital by accessingto new capitals and cheaper bond financing. This has helped in extending supply off funds tonation’s economic cycle and productivity growth capacity across multiple asset class structuresand funding. UK has diversified financial channels facilitated by alternative form of debtfinances and variety of infrastructure projects and goes beyond the public corporate debt market(Szirmai et al. 2013).Range of capital allocation in UK market:(Source: un.org 2017)
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