International Trade & Finance: Financial Markets, Capital Allocation, Challenges

INTERNATIONAL TRADE &
FINANCE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
EXECUTIVE SUMMARY.............................................................................................................1
COMPREHENSIVE REPORT.......................................................................................................1
a. Financial markets for allocation of capital within domestic economy and the international
trade and investments..................................................................................................................1
Background of Financial Markets...............................................................................................1
b. Critical evaluation of challenges because of the trade policies and industrialisation..............5
Critical evaluation of the UK economy.......................................................................................5
Critical evaluation of the Challenges faced by the country because of the Industrialisation and
the Trade Policies........................................................................................................................5
CONCLUSION................................................................................................................................7
RECOMMENDATIONS.................................................................................................................8
REFERENCES................................................................................................................................9

EXECUTIVE SUMMARY
International market is defined as the marketplace where trading of the securities takes
place including the bond market, stock market, derivative market and forex market among the
others. The financial markets are essential for smooth operations of the capitalist economies. It
plays vital role in allocating resources and for creating liquidity for the entrepreneurs and
businesses. Markets make easy for the buyers as well as sellers for trading the financial holdings.
It creates securities which provide returns for the people having excess funds and make the funds
available for the people in need of the additional funds. The financial markets are created by
selling and buying numerous financial instruments like bonds, equities and the derivatives. The
report shows that the capital allocation within the domestic and international economy is
essential for businesses to generate adequate returns. The economy of UK is stable and centre of
attraction of many businesses around the world. The industrialisation brings opportunities but at
the same time also create various challenges for the economy.
COMPREHENSIVE REPORT
a. Financial markets for allocation of capital within domestic economy and the international trade
and investments.
Background of Financial Markets
The financial market refers to the place where people trade the financial derivatives and
securities at lower transaction costs. These securities include bonds, stocks, precious metals and
raw materials that are known as commodities in financial markets. Market is used more strictly
for the exchanges facilitating trade in the financial market. It could be held at electronic system
or at physical location. The trading takes place mostly in the exchange and corporate actions are
outside the exchange. The trading of bonds and currencies take place largely on bilateral basis.
There are global initiatives taken like UN Sustainable Development Goal having target of
improving monitoring and regulation of the global financial markets.
From 2008, there has been resurgence of interests of various investment professionals in
economic history. These markets form the base for creating liquidity for different business
allowing them to raise funds from market for their ventures and for future growth. Risks
associated with these trading are controlled by making the public information to investors and
the traders. The markets help in stabilising economy by instilling the confidence of investors.
There are different types of the financial market operating in every country but they vary
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in the size. There are also big stock exchanges such as NYSE which trades trillions of dollars on
the daily basis.
Stock Market
Stock market trades number of shares for ownership of the public companies. Every stock
come with the price and the investors make the money with stocks when the shares operate well
in market. Real challenge is choosing right stocks which earn money for investors (Avsar and
Piovani, 2019). Real challenge for the investors is to choose right stock which will generate
returns for them.
Derivative Market
Such markets involve contracts or derivatives whose values are based over market value
on assets that are traded. Futures which are mentioned above in commodities market is example
of the derivative.
Bond Market
It offers the opportunities for the companies and government for securing money for
financing investments or projects. In the bond market the investor buys bond from company and
company returns amount of bond within agreed period.
Commodities Market
Commodities market investors and traders buys and sells natural resources or the
commodities like oil, corn, gold etc. The specific market is established for the resources as their
prices are not predictable. There is also futures market where prices of the items are to be
delivered at specific future time which is identified already and sealed today.
Capital allocation within Domestic Economy
The capital allocation is defined as the proper distribution of the capital and resources
available within the economy. The capital allocation is aimed mainly at maximising intrinsic
value of shares of company to be done in ethical and legal way. Allocation decisions are made
through ideas for opportunity cost. The possible use of capital requires to be served as the
opportunity cost for all other use, facilitating comparison between options to select the most
optimal course. This capital allocation needs to be very effective as this will assist the country in
managing the limited resources in effective manner and to have optimum utilisation of the
resources (ZHANG and YANG, 2018). This capital allocation in UK is very important to be
done in effective manner as the whole trade and investment in the economy is dependent over the
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