International Trade Finance & Investment

This document provides an overview of international trade finance and investment. It discusses financial markets, capital allocation within domestic and international economies, and the challenges faced by nations due to trade and industrialization policies. The subject is Finance & Investment, and the document type is a study material.

International Trade
Finance & Investment

EXECUTIVE SUMMARY
International trade finance or investment refers to an activity that indicates global
investment of nation. Financial markets facilitates international financing, it mainly covers four
types of markets that is stock, bond, forex and derivatives. Nation can allocate its capital within
its domestic economy or international markets. Former states allocation of funds within activities
of country itself for the purpose of growth, while, later indicates finance allocation in another
country. Along with it, implementation of industrialisation and trade policies comes up with
some challenges as well.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Background of financial markets:................................................................................................4
Capital allocation within domestic economy:..............................................................................5
Capital allocation within international market:...........................................................................6
TASK 2............................................................................................................................................7
Evaluation of economy:...............................................................................................................8
Critical evaluation of challenges in relation to Industrialisation and trade policies:...................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
International trade investment or finance signifies procedure of fund allocating for the
purpose of trade in international market. International trade can be described as a process of
exchanging products as well as capital across international borders, in other words, international
trade refers to trading that operates globally. International trade financing offers competitive
advantage to nation as it encourages it to specialize in exports or imports and also considers
opportunity cost (Ahn, 2020). Additionally, international trade investments also improves
economies of scale of a country. This report is based on evaluation of trade, financing or
investment opportunities for M&G in international market. Firm serves in the field of investment
management internationally and provides saving solutions to customers. In this report, financial
markets are evaluated along with its working for allocation of capital within domestic economy
and international markets. Additionally, key challenges faced by nation because of policies
related to trade and industrialisation is critically evaluated.
TASK 1
Background of financial markets:
Financial markets: It is a market place in which trading of securities occur That
includes the bonds, share market and many others. It help in smooth functioning of the
operations of the economy and help in allocation of the resource in a proper manner. Financial
markets makes the funds available to the person who are in need of it. Stock market is also a
financial market in which there is buying and selling of the securities take place like equity,
debentures, bonds (Cheng, 2019). The information provided should be transparent enough in
setting the price so that the financial market can easily rely upon them. Their are different types
of the stock market in which the trading can occur easily like over the counter markets, bonds
market, money market and Forex market. These markets have low transaction costs and easily
get traded. Financial markets are flexible enough that creates the liquidity and help the business
to grow in a proper manner and can raise the money (Cottier, 2015). They provide the
information to the investors and traders which help them in reducing the risk and helps in
building the stabilize confidence in the economy. Financial markets make the easy trading and
helps in raising the money.

Financial markets in UK: The UK is the most strong and the innovative centre of the
finance. The person having an huge capital and wanted to invest they choose UK rather then
investing at other place. UK is the worlds largest global centre of funds where the funding can be
made easily. UK reach to the excess growth in the recent years as people start funding more. UK
fund sector is contributing 0.8% in the GDP. The UK also manage the pension and the institution
funds for raising the money which help them in generating the profit and increases the fund in
the future (Foley and Manova, 2015). The Private equity of UK accounts are over 25% and have
52% in the venture capital. Company listed in the UK has two types of the market principals that
are London Stock Exchange and Alternative Investment Market. UK financial markets are highly
regulated and have huge cash flow in the markets which helps in increasing the economy of the
companies. Risk occurs in the financial market transferred to those who have ability to bear high
risk so that the international trades of the funds can be possible and have a proper regulation over
the funds.
Capital allocation within domestic economy:
Domestic economy of UK: Domestic economy indicates activities of inter-related
production, exchange as well as consumption in a country. While considering economy of UK it
is evaluated that country persists market-oriented economy. On the basis of national economy,
United Kingdom is fifth largest in the world while measuring its nominal GDP. On the other
hand, nation is ninth largest in the world while computing its purchase power parity (El Mallakh,
2019). Nominal Gross Domestic Product of a country is 2.638 trillion US dollar in 2020, while,
its PPP gross domestic product is 2.978 trillion US dollar in the same year. Nation pertains
increase in unemployment rate by 3.9 percent in 2020. further, average gross salary of nation is
£585 weekly median. Country incorporated exports of 837 billion US dollar in 2019 and its
imports showcased amount of 876.6 billion US dollar in 2018. Nation incorporated into gross
external debt of 7.499 trillion US dollar in the year 2017.
While evaluating agriculture sector of United Kingdom it can be analysed that it
contributes approximately 0.6 percent of national value added of British. UK pertains highly
intensive and mechanised agriculture. Further, there is increase of 72.3 percent in the year 2019
in the employment rate of nation. Currency of United Kingdom is pounding sterling. In march of
2020, BoE reduced the rate of interest in the nation to 0.1 percent. Apart from it, balance of
payment of a country was revised by ONS by changing its position of net international

investment from surplus of £469 billion to deficit of £22 billion. Nation incorporates an export of
837 billion dollar in the year 2019 and its trading partners are United states, China, Switzerland,
as well as European Union. Further, its import is of 876.6 billion dollars. Trade agreement which
is incorporated by United Kingdom are UK-US free trade agreement and UK-Japan free trade
agreement. In addition to it, on consideration to impact of Brexit it is analysed that Brexit leads
towards slowing down of economic growth of United Kingdom. Further, in the year 2016 rise in
context to unsecured household pertained question regarding sustainability or economic recovery
of country.
Capital allocation of UK within domestic economy: Capital allocation refers to
distribution and investment of financial resources of nation in such a way that its efficiency
increases and profit is maximised (Gleeson and et. al., 2017). Purpose of allocating capital is
enhancement of financial stability and growth as well as increment in value creation of nation.
Following are the ways in which UK allocates its capital within domestic economy:
 Development of infrastructure: Infrastructure development of nation plays an essential
role in quickening its economic growth as well as for alleviating poverty in a country.
Hence, UK invests its capital on development of infrastructure, such as, transport system,
power resources, communication, ports, irrigation facilities etc. enhancement of
transportation facilities in a nation improves efficiency of trading activities in a country.
 Investment in Micro, Small and Medium business: MSMEs or Micro, small and
medium enterprises refers to that business which requires less capital investment and
generates low revenue annually. Hence, employees working in such organizations are
also less. UK government focuses on development of small entities hence allocates
capital for its development and improvisation. Such enterprises plays a crucial role in
creation of employment opportunities in country and helps in its economic growth.
Further, investments in small companies helps in their growth which further contributes
in taxes (Gorgoni, Amighini and Smith, eds., 2018).
 Investing in large organizations: Large companies have huge impact on overall
economy of an organizations. Such firm operates at large level hence, provides more
variations of job opportunities as well as job stability to people of nation. Large
companies enjoys higher profitability hence, is bound to pay high tax to the government.
Even in international market big entities mostly proves to be successful. Hence, UK

encourages large players in corporate world by investing in such companies and
providing ways of development to it.
Capital allocation within international market:
Allocation of capital within global or international market refers to a process of
investments in developed as well as emerging markets across borders. Such fund allocation
indicates determination of costs, return or risk factor involved in financial investment of UK in
international market. International fund allocation enables country in effective allocation of
financial resources and earning of higher profitability (Hahm and et. al., 2019). Additionally, the
ensures gathering of vital informations related to market scenarios across the globe which leads
to effective facilitation of capital. Integration of economies of scale of UK is also promoted
through international financing. Mentioned below are some vital areas in which UK allocates its
capital internationally:
 Mergers and acquisition: Mergers refers to combination of two entities which results in
the formation of new organization, while, acquisition can be termed when a company
purchases or acquires another entity. UK purchases profitable entity of US which
provides higher return to a nation in future. Mergers and acquisition pertains higher value
creation capabilities and improves efficiency of country. International acquisitions is
beneficial for UK as it widens the accessible market share of nation. It also reduces entry
barriers of entitled in markets of United States and provides more market power to UK.
Along with it, this strategy of capital allocation provides new competencies as well as
resources to nation.
 Organic growth investments: Strategy of organic growth encompasses maximization of
growth of nation. Organic growth is mainly focused on optimization as well as
reallocation of resources. Hence, UK invest excess capital in operating organizations of
US. It leads to improvisation in capacity of nation and enhances profitability of business
units. This capital allocation strategy of UK is for long term growth (Janardhan, 2020).
 Paying dividend: Dividend can be described as a return or reward which business
provides to its shareholders. Shareholder is individual that purchases shares of an entity,
which is the form or sources of financing. People across the globe purchases shares of
large organizations of UK. Hence, dividend is paid to them on regular basis as it is an
indicator of financial position of nation. It is also an effective tool for attracting more

investors in a country and creates demand for its stock. Adequate payment of dividend to
international shareholders helps in improvement of stock price and enhances
sustainability of an entity.
 Payment of debt: Debt indicates amount of fund that country owes in international
market (Krol, 2018). Most essential criteria considered by UK while allocating its capital
is repayment of any debts borrowed by country. Interest rate cycle is the major factor that
influences debt payment decisions of country. Quicker debt repayment enhances
credibility of nation.
TASK 2
Overview: United Kingdom operates majorly in international markets of United States,
which consists developed economy. While trading in internationally, several challenges have to
be faced in relation to trade as well as industrialisation policies. Such hindrances or challenges
along with the economy of US is briefly described below:
Evaluation of economy:
United states is highly developed and consists of mixed economy. It is largest economy
of world on the basis of nominal gross domestic product as well as net wealth. Along with it,
nation is second largest on the basis of purchasing power parity. While considering per capita
GDP of US, it is fifth largest in context to nominal and seventh largest in context to PPP in the
year 2020. The country is most powerful in the world in relevance to technology as most of its
corporations are technologically advanced and forefront (Kurtz, 2016). Currency of nation is US
dollar which is majorly utilised in case of international transactions and is foremost as reserve
currency. Largest or vital trading partners of United States is United kingdom, Germany,
Mexico, South Korea, India, France, Taiwan, as well as Canada. US is considered as a largest
importer of world which states amount of 2.49 trillion US dollar in 2019. Majorly imported
goods of nation are agricultural products, manufacturing goods, fuels as well as mining products.
While in terms of export, US is second largest in the world that is of 1.67 US trillion dollar in the
year 2019. nation also pertains agreement of free trade with various countries that includes
NAFTA, Israel, South Korea as well as Australia. Nation consist of infrastructure that is well
developed with high productivity and is abundant with natural resources. In terms of natural
resources, nation is estimated to be seventh highest in the world that values 45 trillion US dollar

in the year 2015. United State contains most productive economy in world. Nation contains
160.4 million labour force in the year 2017 which indicates fourth largest globally. In the same
year, unemployment rate of country showcased 4.1 percent, that is, 6.6 million of people. US is
incorporated with trade organizations such as World Trade Organization and OECD. On division
of GDP by components it is identified that household consumption carries 68.4 percent,
government consumption is of 17.3 percent, it investment in context to fixed capital holds 17.2
percent and in inventory it is 0.1 percent and goods export is of 12.1 percent. Average gross
salary of nation is 63,093 US dollar in the year 2018 and its median gross salary for 2019 is 936
US dollar. On context to rank of 'Ease of doing business' nation comes at 6th position. Main
industries that operates in United States is natural gas, vehicles, chemicals, telecommunications,
processing of food, consumer goods, mining, health care, construction as well as real estate.
Along with it, some other major industries are petroleum, steel, aerospace, electronics,
pharmaceuticals, lumber, equipment of defence, IT, and financial services. Country incorporates
public debt of 107.81 percent of its gross domestic product in 1st quarter of 2020. Nation
showcase revenue generation of 3.3 trillion US dollar in the year 2018 and expenses that is
incurred is of 4.1 trillion US dollar (McNeill and et. al., 2017). Foreign reserves that country
pertains is of value 41.8 billion US dollar in the year 2020. In terms of income inequality United
States is ranked as 41st highest in the world. Foreign Direct investment stock of nation is 4.08
trillion US dollar in the year 2017.
Critical evaluation of challenges in relation to Industrialisation and trade policies:
Industrialisation: It is a period of time that pertains changes in context to social and
economic that leads to transformation of society from agrarian to industrial. It involves economic
re-organization in relevance to manufacturing. In other words, industrialisation indicates
procedure of transformation of economy from agriculture based to manufacturing based. Hence,
in this conversion of manpower is replaced by machineries. This results in mass production as
craftsmanship is replaced with assembly lines. While considering characteristics of
industrialisation it can be stated that it leads to economic growth, it reduces labour requirements
and technological innovation in is utilised in this process for the purpose solving problems
related to business and it also reduces dependency on human resources in business. It improvises
profitability of an entity as economies of scales is enhanced. Industrialisation leads to industrial
development which results in modernization, which ultimately leads to urbanization in US. It

also improves standard of living of people in a country as requirement of skills and expertise
increases (Pauwelyn, Guzman and Hillman, 2016).
While considering challenges faced by US in relevance to industrialization policies
following issues are analysed:
Challenge 1: Migration: Migration indicates movement of individuals from one country
to another with the intention of permanent living for the purpose of employment. Enhancement
in implementation of industrialisation in country leads to reduction in the requirement of
unskilled workforce. This comes up as an issue because unemployment rate tends to increase as
machineries replace requirement of labours in US. Unskilled employees are not able to handle
advance equipments which results in their departure from organization. Hence, these people
migrate from US to other countries in search of employment. Hence migration rate of nation
increases.
Challenge 2: Inequality in income distribution: Income inequality refers to uneven
distribution of among population of country. Industrialisation encourages the requirement of
expertise workforce in US hence employment of unskilled labour is at stake. Due to this reasons
labours are loosing their job as most of the work is handled in an organization through advance
machineries and equipment. Hence, gap between rich citizens and poor increases which leads to
increment in unequal income distribution in United States.
Trade policies: It refers to the rules and regulation and the agreements that help in the
control of the imports and the exports of the foreign countries. It helps in influencing both
foreign and the domestic investment. It helps in defining the trade rules and regulations which
help in building the good trade relations between the countries. The policies are different for
each countries and have to follow these policies strictly during the trade between the countries.
The main aim of the trade policies is to increase the international trade between the countries.
Trade policies includes the inspection and regulation of trade, tariffs and quotas and also
includes the tax which imposed on the exports and the imports. There are the different types of
trade policies National trade policy, bilateral trade policy and International trade policy. In terms
of the international trade the trade policies mostly focused on the Tariffs, trade barriers and the
safety (Wu and Gaenssmantel, 2019). Tariffs includes the taxes the which imposed on the
imports and the exports sometimes heavy taxes are to be paid on the local industries. Trade
barriers refers to the restrictions on the trade of the specific product in the different nation and

they are in the form of subsidies, tariffs, quotas etc. Safety involves the high quality of products
are imported to the different countries so the company lay down the inspection on the imported
products regarding their safety and quality. It helps in determining the size of the markets and
the outputs of the firm and helps in influencing both foreign and the domestic investment.
 Challenge 1: Multilateral order: In this crisis time multilateral order is the major issues
faced by the nation as it increases the trade exchange and there is not enough supply of
the goods which leads to the less imports and exports of the goods. The US may also face
this challenge as when there is multilateral order this type of crisis will occur the US
should make himself prepare.
 Challenge 2: Technology policy: It is another issue which the nation may faced during
the trade of imports and the exports as an innovative performance of an economy affect
the company policies. They started focusing mainly on the innovations and the
technology which may also become a barriers. US may face this challenge if the nation
only focuses on the technology and innovations not on the trades or imports and exports
of the countries.
CONCLUSION
On the basis of this report it can be concluded that international investments or financing
refers to a monetary of financial transactions across borders of countries. International
investments offer better valuations to nation as it stimulates development of economy. It enables
country to grab effective opportunities and leads to increment in its growth and development
process. Further, in this report it can be evaluated that financial markets is platform where
security trading takes place. UK allocates its capital in domestic economy through development
of infrastructure, and investment in small as well as large organizations. On the evaluation of
capital allocation in US international market it is identified that nation allocates funds by
investing in mergers, acquisitions and dividend as well as debt payment.

REFERENCES
Books and Journals:
Ahn, J., 2020. A theory of domestic and international trade finance. Emerald Publishing Limited.
Cheng, T., 2019. Special Economic Zones: A Catalyst for International Trade and Investment in
Unsettling Times? The Journal of World Investment & Trade.20(1). pp.32-67.
Cottier, T., 2015. The common law of international trade and the future of the World Trade
Organization.
El Mallakh, R., 2019. Kuwait: Trade and Investment. Routledge.
Foley, C. F. and Manova, K., 2015. International trade, multinational activity, and corporate
finance. Economics.7(1). pp.119-146.
Gleeson, D. and et. al., 2017. How the transnational pharmaceutical industry pursues its interests
through International Trade and Investment agreements: a case study of the Trans
Pacific Partnership. In Research Handbook on Transnational Corporations. Edward
Elgar Publishing.
Gorgoni, S., Amighini, A. and Smith, M. eds., 2018. Networks of International Trade and
Investment: Understanding globalisation through the lens of network analysis. Vernon
Press.
Hahm, H. and et. al., 2019. Who settles disputes? Treaty design and trade attitudes toward the
Transatlantic Trade and Investment Partnership (TTIP). International
Organization.73(4). pp.881-900.
Janardhan, S., 2020. Harnessing trade and investment agreements to promote public health. Drug
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Krol, R., 2018. Does uncertainty over economic policy harm trade, foreign investment, and
prosperity? Foreign Investment, and Prosperity.
Kurtz, J., 2016. The WTO and international investment law: converging systems (Vol. 20).
Cambridge University Press.
McNeill, D. and et. al., 2017. Political origins of health inequities: trade and investment
agreements. The Lancet.389(10070). pp.760-762.
Pauwelyn, J. H., Guzman, A. and Hillman, J. A., 2016. International trade law. Wolters Kluwer
Law & Business.
Wu, C. H. and Gaenssmantel, F. eds., 2019. Law and Diplomacy in the Management of EU–Asia
Trade and Investment Relations. Routledge.