International Trade Finance and Investment Report

This report discusses the background of financial markets, their key functions, identification of the important financial instrument and the key players in the financial market. The allocation of capital in the domestic and the international economy, examining the growing economies and the challenges or the barriers faced due to the related trade policies and industrialization. It also evaluates the emerging economy of India.

International Trade Finance
and Investment Report
H1809373

Table of Contents
EXECUTIVE SUMMARY ........................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Background of Financial Markets-..............................................................................................3
Capital allocation in a domestic economy-..................................................................................5
Capital allocation across international markets-..........................................................................6
Discussing Evaluation of one emerging economy (normally a BRICS country – Brazil, Russia,
India, China, or South Africa.......................................................................................................7
Challenges faced by a country due to industrialization and trade policies-.................................8
Summary and Recommendations..............................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
EXECUTIVE SUMMARY
In this project based in the background of financial market, key functions of five financial
market: Capital market, derivative market, commodity market, money market and foreign
exchange market. Also, about financial marketplace, financial instruments, who are the key
players in the market, financial process, capital allocation within domestic and international
market, evolution of emerging economy and Challenges faced by a country due to
industrialization and trade policies. At last will discuss the evaluation emerging economy of
India.

INTRODUCTION
The trade finance refers to the financial instruments and the products that are generally
used by the firms to enable a smooth functioning process of the international trade and
commerce. Trade finance creates a space that is capable and easy for importers and the exporters
conduct business transactions through trade. Its grasped as a type of umbrella term which means
that it covers various financial products that the banks and the firms used to make the trade
transactions easy. International finance trade with the economical interactions between people
instead of only focusing on the international market (Latief and Lefen, 2018).
This report will discuss the background of the financial markets, their key functions,
identification of the important financial instrument and the key players in the financial market.
The allocation of capital in the domestic and the international economy, examining the growing
economies and the challenges or the barriers faced due to the related trade policies and
industrialization.
MAIN BODY
Background of Financial Markets-
Financial markets place is the market place where trading of securities occurs involving
the stock market, bond market, foreign exchange market and derivatives market takes place.
These markets are crucial for the smooth sailing within the functioning of the capitalist
economies. Financial markets generally refer to the space in where the traders purchase and sell
the assets in the market which involves the stocks, bonds, derivatives, foreign exchange as well
as commodities. these are the marketplaces where businesses go to increase the cash to multiply
it. It is also the place where many of the companies decrease the risks, and the investors are able
to make the money (Ahn, 2020).
Key functions of the capital market-
The capital market assist in the growth of the economy and expansion of the industries both at
the public and the private sectors. the capital market aids in promoting the saving habits of the
banking institutions. They assist in enabling the stable and systematic prices of the security,
which allows the available funds.
Key functions of the derivative market-
These types of markets help in the management of risks, discovering the prices and is generally
used to find the market expectations of the future price, Also, it has some operational advantages

such as it decreases the commissions and other costs which is very helpful for the traders (Meral,
2019).
Key functions of the commodity market-
These types of markets assistance in discovering the costs of diverse commodities involving the
products related to agriculture. Also aiding in maintaining the quality of the commodities that is
for the buying and selling. It also helps in the diversification and leverage with the help of
margin with the broker. These markets help in the achievement of the food security along-with a
larger amount of investment in the agricultural ecosystem and acts as a latest asset class for the
retail investors.
Key functions of the money market-
Money market involves many submarkets that deals with various types of credit tools and are
issued at a discounted price from the face value. Moreover, they are considered highly liquid and
therefore are the fixed income securities that have a short maturity term (Ganne, 2018).
Key functions of foreign exchange market-
These markets help in transferring the finance, purchasing power from one country to another
and this transfer is affected by the foreign bills which are develops through the telegraphic
transfer, these markets also offer credit for the international trade and develop provisions for the
hedging facilities (Taghizadeh-Hesary and Yoshino, 2020).
Financial marketplaces where the transactions take place-
Stock market- It includes the ownership of the public companies in which each portion has a
price, and the investors build the currency by using stocks when they are able to perform well in
the market. It fully depends on the selection of the right type of stocks.
Bond market- This market provides opportunities to the companies and the government to save
money for the finance of a project or any type of investment.
Commodities market- It is a type of marketplace where the traders and the investors purchase
and sell the products such as oil, gold, meat, etc. because their price is inevitable and cannot be
predicted.
Derivatives market- These are those types of market where when the asset is being traded then
its value is totally based on the market value.
Main financial instruments (derivatives)-

Forwards and future- These are the contracts in terms of finance that makes compulsory for the
buyers to buy an asset at pre-agreed price on a particular date in the future. Both the instruments’
forwards and future are basically same in the nature but forward are flexible and futures are
standardized.
Options- These are type of rights but not any type of compulsion to buy or sell the asset at an
already agreed price.
Swaps- These offers the exchange of the cash flows between the two parties and the most
popular ones are the interest rate swaps, commodity swaps and the currency swaps.
Key players in the financial market-
The corporates- These are the net borrowers and require funds for the various projects regularly
and offer different types of securities to be compatible for the risk preferences of the investors.
Regulators- The financial system is regulated by various government agencies and the
relationship between the participants and other operational functions are examined by these
regulatory bodies (Giroud and Ivarsson, 2020).
Intermediaries- These are also called as the investment managers or bankers and their main
function is to make sure the smooth functioning of the process of investment and to develop a
link between the user of funds and the investors (Redmond and Nasir, 2020).
The role of stock exchange is that it brings both company and investors together. It helps
the company to raise the capital and investors to invest in it by issuing equity shares. Which
helps the company by getting funds and investor will earn profit.
Financial process means it is the procedure and method attained by finance office. There
are steps involved in financial process:
 Identify financial situation as an identifying the situations cooperations as operating
business that definietly required capital growth.
 Determining financial goal after determining the financial goal funds are being raised as
institutional manager, retail investors and fund managers help to provide the finance to
help them to grow and start their business.
 Identifying alternatives of investment. There are some investment banks hired to make a
perfect deal between institutions and cooperators.
 Evaluate that alternatives which are identified, putting plan together through
implementing it and at last monitoring. It is contains public accounting firms that is

involed in multiple market but mainly in primary market, Through Dealers, brokers, and
exchanges.
Role of FCA are: Protecting customers, market integrity and promoting effective competition.
Capital allocation in a domestic economy-
Capital allocation refers to how and where the chief executive officer of the corporation
will decide to spend money that the firm has earned. Also, it is known as distributing and
investing the financial resources of the company in such a way that it will help in enhancing the
efficiency and to raise its profits. A company's management will allocate its capital in the way
that it will develop more wealth for its shareholders. Although this process of allocating the
capital is complicated because the decisions related to capital allocation defines the success and
failure of the company.
The UK corporation is involved in a collection of the capital markets activities from the
debt and finance equity to the hedging with the help of derivatives. The banking leads are to
expanded as corporates started revolving the facilities related to credit. The UK government have
started a funding scheme which allows UK Businesses to access liquidity. From a different
perspective, the evolution of the UK capital markets have diverse and simplified access to the
market. An addition the capacity and flexibility provided by the capital markets for the
companies in UK. capital markets play a vital role in UK companies as these are embedded in
the UK economy (Kozlowski, 2021).
Capital is used by the firms to pay for the present production of goods and services in
order to develop revenue. The companies use the capital to invest in those things that created
value such as the labour and the building expansions are the main areas of allocating the capital.
Many other private companies are accountable for the acquiring of the own capital, the capital
assets and the capital requirements for the corporate investment. These elements are closely
examined by the analysis of the balance sheet. In UK, the banks are needed to hold a minimum
amount of capital the risk mitigation need also known as the economic capital supervised by the
central banks and the banking regulatories. The financial capital is analysed by the economists to
comprehend and the way in which it impacts the growth of the economy. The business capital
and the financial capital are examined from the view of the capital structure of the company
(Baldwin and Tomiura, 2020). Bank of England plays very vital role as like most rich Country
central bank. In monetary and fiscal policy, BOE has a role of managing Government debt. Only

at the time when new debt management offficer was appointed when free rein policy was given
to the bank.
Capital allocation across international markets-
In the last ten years, the streams of assets and the goods across the globe have risen at
excessively according to the GDP (Gross Domestic Product) and has shifted rapidly during the
global financial crisis and the pandemic. Also, Governments and corporations borrowed from
foreign investors at an increasing rate which created alternatives for the allocation of capital in
association with the asset class, currency. It was also discovered that the demand for the dollar
denominated assets across the globe effecting advancing firms in America. Having crucial access
to the global markets, they have no need for foreign investors in the foreign currency (Rana and
Sharma, 2019). IMF and WTO are international organization, which supports international
trading and smooth flow to reduce risk in payments. It helped as enabled economic growth,
reduce poverty and raised living status. They have regular consultation. Foreign direct
investment (FDI) plays fundamental roles in international finance and investment as it is the
driver of global economy: transferring goods across the border, transfer of goods, services and
capital to the market all over the world.
The map of the capital allocation showed that the relatively larger bond investments by
the developed countries in the growing economies exist like Brazil, China and Russia. The usage
of the tax havens by the bigger firms in china disrupts the understanding of the china as creditor
across the globe. It was organized by the tools and the data so that the other users among the
policymakers can create on them. The international capital markets permit residents of various
countries to classify their portfolios by trading asset, allocation of capital in the foreign market
which can be allocated with the help of selling of the foreign bonds, rate of exchange, hedge/
swap fund. The FDI is classified as a industry of a particular country putting the physical
investment like building the facility in other country. This is done for creating the buildings,
machinery, and the tools which are not in line with developing a portfolio investment.
International money market involves the national currencies that excluding the currency
of issue in a foreign market in which the trading of the foreign currencies takes place that
consists of the dealers in foreign exchange which are employed by the commercial banks. Also,
there are many challenges faced in the capital allocation in the international markets such as the
financial crisis, increasing poor population in the rural areas and the climatic change.

Discussing Evaluation of one emerging economy (normally a BRICS country – Brazil, Russia,
India, China, or South Africa.
Evaluation of emerging economy of India. Emerging economy means, it is an economy
of the developing country that is being more engaged along global market as it grows. It
progresses and typically becomes more involved with the global economy, as it is increasing
equity market, increased in liquidity in debt, FDI (foreign direct investment) and increased in
trade volume along with the domestic development of regulatory institutions and modern
financial. Emerging economy is economy which is in the process of becoming developed
economy.
There are various academic data sources like: - Rapid growth, high productive levels,
increases in middle class, Transition from a closed economy to an open economy, and instability
and volatility.
Rapid growth: Economic growth of her country with emerging market economy grow 6% to 7%.
Where countries with already well-established economy reports a rate of growth below 3%.GDP
growth of emerging market is performing well in place of developed countries.
High productivity level: Developed countries establish and emerge low cost labour for
manufacturing factories and engaging outsourcing. But labour known as low cost, which helps
on production and increase employment. As emerging market should increase in international
presence of import and export.
Increase in standard level: Country goes out of poverty if there is an improvement in economy.
country’s productivity level and additional income helps individual with higher standard of
living by which people can get more quality in education and have more opportunity of using
better technology and infrastructure.
Transition from a closed economy to an open economy: Developing country mainly focus on
local agriculture market, as it run as closed economy. Country needs an advancement towards
international trade, so it works towards economic advancement.
Instability and volatility: Emerging market has risk to change as it has not fully developed yet,
it is developing countries. They are generally changes like financial changes in currency,
inflation and interest rates. So, they bring changes by bringing adjustments in pricing
commodities.

Foreign trade is essentially export and import internationally. There are some international trade
practices :
Main import: India imports around 6000 commodities from around 140 countries. Top products
which imports are crude oil, coal and coke. India has net service surplus as it imports service
more than service export. in data showing that India’s Service is declining in GDP. Now India’s
service finance is about 50% of merchandise deficit.
Main export: Exports around 7500 commodities to around 190 countries. Petroleum products,
precious stones, drug formulation gold and many others. Precious metals. India’s merchandise
imports are more than exports. But still TB (trade balance) has improved from last 10 years.
Balance of Payment: India trade in Goods, services and transfer payment, foreign investment,
external assistance, Deposits, borrowing and other flows.
Performance of India is now 68 out of 190 countries, Digital transformation for economic
resilience, green recovery and action of climate, putting sustainability at the core of the business,
Increase infrastructure connectivity, Promoting green technologies (Foreign Trade of India:
Concepts of International Trade, 2021).
Challenges faced by a country due to industrialization and trade policies-
Declining working conditions- The work in the industry sector was quite dangerous as
there no regulations for the protection of the employees and used tools and machineries that did
not have any safety requirements. Also, the workers were required to work for long hours and
increased the risk related to the health hazards.
Increasing child labour- Children were required to work for long hours and could not
attend the schools and get even the basic education (Opoku and Boachie, 2020).
Increased income inequality- During the starting stage of the industrialization, many people held
so much money with themselves only which led to the problem of the increased income
inequality (Signé, 2018).
Global warming and climatic change- Industrialization deteriorated the quality of water and the
air which also led to the reduction in the biodiversity of the economy, the plastic was everywhere
along-with increased pollution which proved out to be harmful for the living organisms.
Use of more fossil fuels- The use of the fossil fuels to develop the goods and the services were
required from the factories.

Change in concept of work- With the increased use of artificial intelligence and machine
learning, there lead to a shift in the economy in the field of productivity.
Theft of intellectual property- The countries which are developing dont have the laws for the
protection of the patents, inventions and the latest processes which lead to the companies have
their confidential data to be stolen.
Poor working conditions- many multinational companies lead to the increased job opportunities
for the people but without proper labour protection which led those people to come in subject
with the gruelling working conditions.
Limited alternatives for customers- When there are certain trade policies which are imposed
which led to the consumers to have a limited choice and have an access for the limited products
in the market because of the limitation on the foreign goods (Taghizadeh-Hesary and Yoshino,
2020).
Disrupted technological advancements- As there is no flow of the foreign goods into the country
so the domestic producers need not to worry about the foreign competition so they have no
creativity left to compete with anyone or spend any efforts on the research and development of
the new goods.
Economic isolation- It is one of the major factor that lead to the political and the cultural
isolation which directly have an impact on the economic isolation.
Rise in price or inflation- When there is lack of competition between the domestic producers
which lead to the customers paying more for a product without looking for any important
improvement in the product.
Depletion of the natural resources- Many of the new market countries did not have the required
environmental protections rules which led to the destruction of the natural resources such as the
minerals, timber, coal, etc. Also large amount of trees were cut down which led to the
deforestation and the strip mining.
Summary and Recommendations
In this Project report discussed Trade finance refers to the financial instrument which is
used for smooth functioning of the trade and commerce. It helps importers and exporters in
completing transactions. Also, discussed that it work as umbrella as it covers various financial
products here discussed the financial market, their functions. Background of financial market,
key functions of every type of market and key players in the financial market. Financial market

is very wide as it contains bond market, stock market, foreign exchange market, derivatives and
many more. How capital allocate in Domestic market as it shows how and where CEO of
corporation will spend money and from where, will earn. Came to know about distribution and
investing financial resources. International market how GDP works. How UK corporation
involved in collection of capital market used funding scheme by UK government. Also,
discussed international capital permits the residents of various counties to classify the portfolio.
FDI classified as industrial growth. Allocate many challenges which are faced in the capital
allocation such as financial crises, increasing poor population in the rural areas and change in
climate. Then briefly studied about evaluation on emerging economy (BRICS) in this discussed
rapid growth, high productive level, Increase in standard level of the economy, Transition from a
closed economy to an open economy and in the end about main import, main export and balance
of payment in Instability and volatility.
Recommendations
A good financial market must be where the transaction cost is low. An ideal capital
allocation in which there is mix of investment, which includes the stocks, bonds, cash, money
securities. To overcome the challenges faced due to industrialization and trade policies, it is
required to build sustainable environment, create more jobs, control of population. For
Evaluation of one emerging economy recommend that it could Get way accustomed to scarcity,
keep up to date on communication tech., development of new competencies in managerial and
leadership, seek for solution by collaboration, don't stop just go with certainties.
CONCLUSION
It was suggested by various economic theories that the international trade improves its
efficiency. the uprise in the latest technology surely essentially adds to the production capacity of
all the economies that are involved in trade. efficiency can also be presented due to the
comparative advantage and the benefits of increase in returns. Another benefit is that it increases
the dynamism and the invention in an economy.
The above report discussed the background of the financial markets which involved
identification of the main functions of the financial markets, main financial instruments, the main
players in the market, capital allocation in the domestic as well as the international economy,

evaluation of the growing economy and the challenges faced by the countries because of trade
policies and industrialization.

REFERENCES
Books and journals
Ahn, J., 2020. A theory of domestic and international trade finance. In Emerging Market
Finance: New Challenges and Opportunities. Emerald Publishing Limited.
Baldwin, R. and Tomiura, E., 2020. Thinking ahead about the trade impact of COVID-19.
Economics in the Time of COVID-19.59.pp.59-71.
Ganne, E., 2018. Can Blockchain revolutionize international trade?. Geneva: World Trade
Organization.
Giroud, A. and Ivarsson, I., 2020. World Investment Report 2020: International production
beyond the pandemic.
Kozlowski, J., 2021. Long-term finance and investment with frictional asset markets. American
Economic Journal: Macroeconomics.13(4).pp.411-48.
Latief, R. and Lefen, L., 2018. The effect of exchange rate volatility on international trade and
foreign direct investment (FDI) in developing countries along “one belt and one road”.
International Journal of Financial Studies.6(4). p.86.
Meral, Y., 2019. Strategic Management of Finance and Role of Documentary Credit. In
Handbook of Research on Global Issues in Financial Communication and Investment
Decision Making (pp. 395-416). IGI Global.
Rana, R. and Sharma, M., 2019. Dynamic causality testing for EKC hypothesis, pollution haven
hypothesis and international trade in India. The Journal of International Trade &
Economic Development.28(3).pp.348-364.
Redmond, T. and Nasir, M.A., 2020. Role of natural resource abundance, international trade and
financial development in the economic development of selected countries. Resources
Policy.66. p.101591.
Taghizadeh-Hesary, F. and Yoshino, N., 2020. Sustainable solutions for green financing and
investment in renewable energy projects. Energies.13(4).p.788.
Online
Foreign Trade of India: Concepts of International Trade, 2021 available through
<https://www.clearias.com/foreign-trade-of-india/>
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