International Trade and Finance: An Evaluation of Financial Markets and Capital Allocation in the UK

This report evaluates the financial markets and capital allocation in the UK in the context of international trade and finance. It also discusses the challenges faced by the UK due to industrialisation and trade policies.

International Trade
and Finance

EXECUTIVE SUMMARY
Evaluation of financial market is necessary top make the difference between all financial
market. Capital allocation is necessary for the economy of each and every country. The
allocation of capital is done domestically or internationally. Commercial banks, derivatives, bond
market are the several international financial institute which perform the function of allocation of
capital on international level. Industrialisation and trade policies bring several of changes in the
economy of a particular country. Along with this, it also bring several of challenges, which
directly effect the economy.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................2
Discussion regarding the background of Financial Markets.......................................................2
Capital Allocation within Domestic Economy...........................................................................5
Capital Allocation within International Markets.........................................................................5
Critical evaluation on the challenges faced by the country due to industrialisation and Trade
policies. ......................................................................................................................................7
CONCLUSION................................................................................................................................8
Recommendations.......................................................................................................................8
References:.....................................................................................................................................10
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INTRODUCTION
International trade is defined as the performance of business operations on international
level. International trade leads to the proper use of resources of a specific country. Resources
include labour, capital, technology and many more. In simple words, it can be defined as the
exchange of goods and services among the countries. Whereas trade finance is consider as a
fiscal or monetary tool which is being used by the organisations for providing support to the
international trade and commerce. It plays an important role in exporting and importing as it
provide financial support to the organisation. This report deals with the concept of international
trade and finance in the context of a country which include the background of financial market
with the domestic and international economy (Ndubisi and et. al., 2021). In addition to this, it
also cover the several challenges which are being faced by the selected country because of its
industrialization and trade policies. The chosen country for this report is United Kingdom (UK).
MAIN BODY
Discussion regarding the background of Financial Markets
Financial markets refers to the collection of market place in which the trading of financial
securities have been done. It include stock market, derivatives market, foreign exchange market
and many more. These markets provide a place to the borrowers and investors for the purpose of
receiving grand interests (Mourao 2018). It include the securities or assets which are listed in
several markets.
Financial markets perform several functions such as providing information to different
investors and borrowers related to the investment, mobilization of financial assets, identifying
the prices of several instruments available in the financial market and many more. It has been
analyses that all the major functions of financial markets are depend on the types and nature of
securities that they deal in. There are several types of financial markets. Some of them are
explained below:
 Capital Market: It refers to the market channel of Savings and investments among the
investors. It include primary and secondary market along with two common markets
which include stock market and bond market. It plays a major function in order to
providing the mobilization to the capital in the specific economy for the purpose of
boosting its growth and national income.
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 Derivative Market: It is defined as the market which deals with the financial
instruments such as future contracts or options holding the financial value or asset. Some
of important derivative instruments include futures, swaps, options and forwards.
Determining the prices of instruments, enhancing the liquidity of the assets and serving as
a great tool for hedging are considered as the major function of this market.
 Commodity Market: It refers to the market which majorly focus on the activities of
buying, selling and trading of raw materials or commodities such as Gold Coffee and
many more. Its main function is to provide the consumers and producers of a comedy for
the purpose of gaining the products and clients in a liquid market (Maxfield 2018).
 Money market: It is defined as a type of Financial Market under which all the financial
instruments are extremely liquid and the trade of these instruments have been done only
for a short period of time. The main function of this market is to serving as a medium of
exchange in an economy and Finance trade.
 Foreign Exchange Market: It is the financial market which allow the individuals and
participants to buy and sale the currencies for the purpose of tentative and prevarication.
Its function is to increase the trade of one currency into other and as a result it transfer the
purchasing power of two countries.
Above mentioned are the several markets which also highlight their function in an
economy. It has been found that mostly the trade in an economy take place in the stock
exchange. It is defined as the market which is a part of capital market and it performs the
functions of exchanging of securities. It is considered as the secure and regulated market place
where the registered companies can issue the stocks. It is the place where investors and common
people can approach to invest in the listed companies by buying the stock shares of them. Debt
market is defined as the market place where the trading of debts have been done in the form of
loans. It offers the low rate of investment as it has low risk in investment which have been
secured by some form of assets. These debts include mortgages, debenture and bonds. Whereas,
the place where the trading of equity or securities of several companies have been done, that
market is known as equity market. It has been found that the return on such investments are high
as it has a higher risk in the stock market.
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Key players of financial markets are given below:
 Investors: It refers to the players of stock market who invested the financial funds which
are possessed by them into these markets. Investors deposit the money into the financial
instruments which include shares or debentures of any company. They invest some
amount for the purpose of earning a higher return (Martinez and et. al., 2020). Companies
provide return to the investors in the form of interest or dividend.
 Borrowers: It include those people who provide the funds to the Institutions or people
for several purposes. Business organization always needs funds to invest for the purpose
of grow their business operations which leads to the increase in the profitability of
business organization. For the same purpose the business organizations borrow money
from the general public by issuing them share which provide the power of ownership to
the borrower. For example Tesco is a listed company of United Kingdom which is
issuing shares to the general public for the purpose of fulfilling the requirements of funds.
 Lenders: It is defined as the medium through which the funds are being exchanged
among the borrowers and investors. They pass the funds which are being collected from
investors to the ones who need it after following a proper course of action. Sometime, the
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lenders also provide advance money to the companies in the form of loan. For instance,
HSBC Holdings of UK provide funds to the institutions as loans.
 Financial Conduct Authority (FCA): It is defined as the independent body in United
Kingdom which develop the rules and regulations related to the financial services in
financial market (Li and et. al., 2020). The objective of these bodies is to protect the
interest of both consumers as well as the investors along with promoting the integrity in
the financial market of United Kingdom.
Capital Allocation within Domestic Economy
Allocation of capital is defined as the sharing of capital in the entire economy which
helps the business organisations to increase profitability along with ensuring the proper
utilization of resources. London Stock Exchange of United Kingdom help the economy in
assigning the resources to the best use. If the stock exchange stop performing the functions in an
economy, the borrowers do not have enough funds. As a result, the business organisations will
not able to fulfil their monetary needs. In UK, the financial markets are regulated by Financial
Conduct Authority (FCA). It regulate the entire financial market of the economy of United
Kingdom which ensure that all the functions are being performed by the players in an
appropriate manner (Sadeghi and et. al., 2019). There are several parties who work work for the
allocation of capital in United Kingdom such as the Financial Conduct Authority, the Treasury
and The Bank of England (Li 2021). Majorly, they perform the function of providing liquidity to
the domestic market and holding the money in the case of high cash flow. Several of policies are
made and developed by these parties and it is necessary for players to follow the same. The
players who do not perform the practices as per the regulations, they will going to punish and
charge. Fiscal market place employed in the country help in capital allocation. Along with this,
these financial bodies act as the lenders and borrowers which hold a fiscal equilibrium in home
economic system. The regulative government of country helps the management of business
organisation in performing their duties in a effective and efficient manner.
Capital Allocation within International Markets
International capital market is defined as the financial market place where the trade of
several securities have been done among the investors and borrowers. Securities include various
financial instruments such as mutual funds, shares, bonds, currencies and many more. The
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capital allocation in the international market have been done with the help of several players of
financial markets. Some of capital allocation bodies are discussed below:
 Commercial Banks: In the context of international economy, the commercial banks build
a link among several of countries so that they can performing the function of trading
with several of banking securities which result in increase in the exchange of money.
Domestic banks provide the funds to several of individual in the form of loans and
advance. Commercial banks also perform the same function (Tran and Le 2017). It has
been analysed that any nation can acquire and deposit the funds in these banks so that
any of country can use these funds whenever they want. Asian development Bank and
World bank are the example of commercial banks.
 Derivatives: These are the securities which help the economy in maintaining the
exchange rate by doing trade in the international market. The measure is traced on the
basis of agreed financial assets. JSE's Internation Derivative is the example of derivative.
 Bond Market: It is the market which perform the trading of several official bonds among
the economies. It is the market which attract the investors to take the participation in
these bonds and invest their financial funds for the purpose of gaining interest. Mostly,
these markets deal in the Dollars and Euros.
 Global stock Market: It refers to the market which deal with the several of stocks of
various companies at international level (Ho and Iyke 2017). It helps the investors in
taking the decisions regarding the purchasing of shares and earning ownership of any
organisation which is working abroad. London stock exchange is the example of global
stock market as it is working as a foreign institution of investment.
From a recent report, it has been found that the economy of united Kingdom is the most
enhanced and familiarized economic system as it comes on 5th place on Gross Domestic Product
whereas on 9th position as per Buying Power Parity. The economy of UK is performing well in
export and import. Hence it is placed on the 5th position. UK authorise are taking huge interest in
improving the economic system. The fiscal policy of banking system of UK develop the policies
related to the interest and tax. The economy of United Kingdom has faced the recession firstly in
the late years of 2000s as the nation has started passing much in the Gross Domestic Product.
It has been carried out that the economic system of United Kingdom has grow by 0.6% in
relation to the Gross Domestic Product and 0.7% with respect to the employment after the
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pandemic. Along with this, the growth of 6.4% in mankind wellness have been analysed. Due to
the alteration in stamp duty, legal actions were going away weak.
Critical evaluation on the challenges faced by the country due to industrialisation and Trade
policies.
Industrialisation is defined as the process of bringing changing and advancement in the
economy. Several of heavy and advance machines are being used in order to doing the
production of goods and services. Majorly, the transformation in the of technique of production
is defined as the industrialisation. Along with this, it include the shifting of hand work to the
automated machinery work (Haggard and Cheng 2018). It result in the production of goods and
services in consuming less time and lesser difficult activity. The application of new and advance
technology and machines also bring several of challenges for the economy of a country. Below
mentioned are the several of challenges faced by the economy of United Kingdom:
 Brexit: It has been found that many of companies of United Kingdom are effected by
the strategies of industrialisation. Brixit is found as irrelevant for several of companies
of UK but the strategies of industrialisation state that UK is able to tackle the issues of
working in the worldwide environment.
 Digitalisation and technology: Industrialisation bring the several of changes at the
work place. Hence it is necessary for the companies to learn about the concepts of
digitalisation and use of technology in an effective and efficient manner. It has been
analysed that the monetary funds are not enough to handle the information and
artificial intelligence (Blumberg 2018).
 Skills: It is consider as the another challenge which work as burden on the strategies of
industrialisation. Large number of experienced engineers are required to perform the
functions whereas the reduction in the supply of skills have been analysed. The
government of United Kingdom is not only worried about the new talent, but they are
also looking for the capabilities of individual to lean in a new manner.
 Productivity: During the last few years, the productivity of entire country has been
low. The government of United Kingdom has bring five aspects of productivity,
innovation which include business environment, people, place and infrastructure. It
plays an important role in improving the hourly performance. But this strategy was
applicable only on the large companies not on the small and medium businesses as
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these businesses do not have enough cash for keeping the supply chain levels up in the
economy. It completely ignore the competition as well (Xiaoxi and Yang 2019). The
task of implementation is also not an easy task.
Trade Policy Challenges
 Development: Trade policy is not aware with the categorical variety of developing
country. If the underdeveloped countries are treated as the developing countries by
taking the advantage of free trade policy which is not good for the developed countries.
 Geopolitics: In today's world, it is not an easy task to make development because the top
table does not display a consensus view (Alexander and Eberly 2018). It does not show
any positive effects on trade policy.
It is analysed that the industrialisation and trade policies have several of positive aspects
on the economy of a country but it is not necessary that all the policies fit to all the sectors of the
economy because of difference in the requirement of capital.
CONCLUSION
From the above report, it has been concluded that the financial markets plays an
important role in the strong establishment of economy. These markets work for collecting the
monetary funds which can be used for the growth and success of corporation. Those person who
are involved in the financial market are known as players. Some of players are borrowers,
investors, private lenders and many more. Along with this, a small discussion of these players
have been done on international level. The trade organisations such as International Monetary
Fund, World bank performs the functions of trade management at international level. In addition
to this, the capital allocation in United Kingdom and at international level have been analysed.
Industrialisation and trade policies bring several of challenges for the economy of UK. Many of
people lost their jobs as the advance machinery remove the work force from the companies
which highly effect the industrialisation.
Recommendations
This report had made clear the concept of international trade and finance. It is necessary
to provide some recommendations to the investors to take care of some factors before making the
decision of doing investment in the financial market. Some of them are given below:
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 The investors have so many options through which they can do investment in any
organisation of any other country. The investor can do the investment in the partnership
venture, large company or any other enterprise. They are required to do complete
investment before investing in any business. The investor can start any new venture and
invest as an FDI in a new country.
 The investors are recommended to invest in the secured format which include debentures
as it implies a safe side to the investors for the purpose of earning interest.
 If the capitalist do not have required knowledge and skills, it is recommended them not to
invest in the global businesses. They are required to have proper knowledge. Only having
the proper knowledge, they can earn profit from their investment.
 It is also recommended to the investors to make the payment in instalments as now. It
will provide them a power of drawing back money from the business, if they are not
getting enough interest on their investment.
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References:
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