Financial and Economic Analysis Report on UK Economy and Trade

This report provides a detailed analysis of financial and economic concepts, focusing on the UK economy. It begins with an exploration of different types of goods, including normal, Giffen, substitute, and complementary goods, and examines price elasticity of demand, including perfectly elastic, inelastic, and unitary elastic scenarios. The report then delves into various production types, such as primary, secondary, and tertiary production, and discusses growth strategies like market penetration, expansion, product expansion, diversification, and acquisition, using the gold mining firm as a case study. Furthermore, it covers the theory of fiscal policy, analyzing the fiscal policy implemented by the UK government in 2018, including budget deficits and spending plans. Finally, the report examines the benefits of globalization and international trade, highlighting their positive impacts on the UK economy, including market expansion, technological advancements, and employment opportunities. Financial ratios and NPV calculations are also included.

Financial & Economic

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Different types of goods and price elasticity of demands.......................................................1
Determine to consume the goods in the basis of price elasticity and types of goods.................3
2. Types of production and growth strategies.............................................................................3
Growth and expansion of gold mining firm................................................................................4
3. Theory of fiscal policy............................................................................................................4
Fiscal policy implemented by UK government in 2018.............................................................5
4. Benefits of globalization and international trade....................................................................5
Benefits of globalization and international trade to UK.............................................................7
A. Ratio analysis ........................................................................................................................7
B. NPV calculation.....................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial and economic literacy help the manager to get the information about the various fiscal
policy, impact of globalization and the international trade. The report highlights the different
kinds of goods and elasticity of demand. It explains the various strategies to promote and expand
the business in the market. It also explains the fiscal policy and the different benefits of
international trade and globalization on the UK economy and business.
MAIN BODY
1. Different types of goods and price elasticity of demands
Different types of goods
Normal goods : The quantity demand of the product is increase by increasing the income
of the consumer or decrease by decreasing in the income of consumer. That kind of goods are
known as normal goods.
Giffen goods : Giffen goods are also known as inferior goods. Normally people buy the
goods when the price of the goods is rises. It violates the law of demands of goods. In giffen
goods case the close substitute of goods are not available which affect the income effect (Etzioni
and Lawrence, 2016). The high level income consumer buy more goods in the market even the
price of the goods is high.
Substitute goods : Substitute goods are those goods which can be used in the place of
other goods. For example tea is the close substitute of coffee because Tea can be use the place of
coffee. The demand of the one substitute is increase than the price of the other substitute is
decrease. These goods provide choice to the consumer and different alternatives by creating
competition in the market.
Complementary goods : Complementary goods are those goods which are consumed
with the another goods. For example ink is the complementary good of pen. The price of one
complementary good is increase with increase in the price of the complementary goods (Jaqua
and Schaffa, 2016).
1

Some other kind of goods are consumer and non consumer, durable and non durable,
consumer and producer good etc. there are different criteria to differentiate the goods in the
market.
Price elasticity of demand
Elasticity of demand refers to change in demand due to change in the price of the
product. Demand can be elastic or inelastic in nature. When the change in demand is greater due
to the little change in price is known as elastic demand and when the change in less in respect to
higher change in price is known as inelastic demand (Khakee and Hull, 2016). The various kinds
of elasticity of demand are :
Perfectly elastic demand : In perfectly elastic demand, the rise in price fall the demand
to zero and a little change in price of the goods reflect a major change in demand of the goods. It
helps to find the slope and shape of the demand curve which help to analyse the trend in market.
Perfectly inelastic demand : The change in the price of the product does not affect the
demand of the product are known as perfectly inelastic demand. The demand of the product
always remains constant in any value of price of the product. For example common salt because
the common salt is an essential good so the demand of the product does not change with change
in price.
Relatively elastic demand : The proportionate change in demand is grater than the
proportionate change in price is known as relatively elastic demand. For example the price of the
goods is increased by 25 % and the demand of the goods is decreased by 30% then the demand
of the product is relatively elastic.
Relatively inelastic demand : the percentage change in demand is lesser than the
percentage change in price are known as relatively inelastic demand. For example the price of
the product is increased by 40% and the demand of the product is decreased by 20% is known as
relatively inelastic demand (Haynes and Grensing, 2018).
Unitary elastic demand : The percentage change in demand is same as the percentage
change in price is known as unitary elastic demand. The degree of elasticity of demand is 1 in
Unitary elastic demand.
2

Determine to consume the goods in the basis of price elasticity and types of goods
The price elasticity and types of goods help the customer to determine the decision to buy
product and services or not. When the demand of the product is perfectly elastic the small change
in price of t eh product reflect the grater change in demand of the customer. If the price of the
substitute goods is increase than the customer change their buying decision and move towards
the other substitute goods. Inelastic demand does not change the decisions of customer in case of
inferior goods like common salt. The rise or fall in the price of salt does not change the price of
the products so the decision of customer remains same.
2. Types of production and growth strategies
Types of production
Primary production : It refers to extracting and producing the goods from the nature. For
example agriculture, mining, fishing, forestry are the example of primary production. The
production of the goods or product are related to the earth and Ocean.
Secondary production : The conversion of raw material into the finished goods are included in
the secondary production. Generally manufacturing and constructing industry are comes under
the secondary production. The example of secondary production are clothing and chemicals,
cars, furnishing etc.
Tertiary production : Tertiary production includes the service industry. The example of tertiary
production are education, transport, health and defence, administration, banking, government
service etc. It includes to provide the goods in the hand of the consumer (López-Cózar-Navarro,
Benito-Hernández and Platero-Jaime, 2017).
The different factor such as land, labour, capital and enterprise are dome common factor which
affect the production activities.
Various growth strategies
Market penetration : It was used by the small businesses to market and promote the existing
business within the same market to increase the market share of products. To increase the market
share the company decreases the price of the product which attract the customer towards the
same product and help the company to get the higher customer in compare to their competitors.
3

Market expansion strategy : It is also known as market development strategy. It refers to
selling the existing product of the company in the new market to capture a new range of
customer and expand the business with new market (Richter and et.al., 2018). Company use the
market expansion strategy when the competition in the existing market is high and there is
minimum chance of growth.
Product expansion strategy : In product expansion strategy organization wants to expand the
business with increasing the product range or adding new features in the existing products. It
helps to introduce the new product in existing market and provide range of new products to the
existing loyal; customer (Types of growth strategies, 2019).
Diversification strategy : It refers to sell the new products and services in the new market.
Diversification strategy is riskier strategy because it need huge capital investment and market
research to expand the business. To diversified the business a company needs a perfect market
research to evaluate the existing market, competitors, growth option etc.
Acquisition strategy : In this strategy a company purchase the business of another company to
expand the business and capture greater market share. Acquisition strategy help the company to
expand the business and enter into new market so the company can get the variety of customer
with new demands of products. It is less risky than diversification strategy because the market
and product are already establish (Young-Speirs and et.al., 2018).
Growth and expansion of gold mining firm
Gold mining firm use the product expansion strategy for the expansion and growth of the
business. They provide the variety of new product in the existing market to capture the grater
market share. In product expansion strategy they add the new features in the existing products or
introduce the new product in the existing market. It encourages the gold mining firm to introduce
new range of products to attract the customer.
3. Theory of fiscal policy
Fiscal policy : it refers to the different strategies and policies by which the government adjusts
the spending level and tax rates to regulate, monitor and influence the economy. It was used by
the central bank to regulate the supply of the money across the nation (Bhattarai and
Trzeciakiewicz, 2017). Fiscal and monetary policy are used to regulate the money and achieve
the goal of the organization. By using the fiscal and monetary policy government can control the
4

economic factors and forces. To manage the spending power and tax rate various regulation are
formed by the government (Oliver, 2019).
Fiscal policy implemented by UK government in 2018
In 2017 the UK fiscal deficit was £46 billion or 2.3 % of GDP. The net debt in public sector was
87% of GDP and government debt was £1.8 trillion. In 2018 UK government develop various
policies to improve the fiscal deficit and maintain the tax rate in the nation. The tax rate was low
which results to less collection of fund to manage the expenses of the UK economy. UK
estimates the spendings of the nation to control them. The expected spending of the government
is £814 billion and £150 billion in healthcare, £165 billions in pension, £85 billion in education
and £47 billion in defence. It implements various plan to control the deficit. The aim of the fiscal
policy is to cut the structural fiscal deficit is to below 2% of the GDP. They want to cut the
structural fiscal deficit by 2 % in 2020-21. UK government implement the balanced budget to
manage the tax rate and the spending power. The unemployment rate of the UK was 4% in 2018
which was quite low to the other country which shows that the population of UK was able to get
the employment. It reflects that the budget of the UK should be balanced or in surplus. But due
to the structural gap between the government spending and the tax rate UK faces the budget
deficit in 2018. In budget deficit the spending of the government is exceeded to its expected
budget. The Brexit also the reason of increasing the deficit.
4. Benefits of globalization and international trade
Globalization : Combination of one nation economy to the other nation economy is known as
globalization. Different companies come together on the global platform to established and
expand their business in global market (Das and Tamuli, 2017). It makes the international trade
easy because it provides the variety of investors with the different range of customer.
Benefits of globalization
 Globalisation provides the huge market place to expand the business of the company. It
helps to gain the benefits from the global market.
 It provides the different technological tools and knowledge to promote the business in
different countries.
 It also provides the employment opportunity and decrease the rate of poverty in the
nation.
5

 Globalization provides variety of product to different customer and help the company to
improve their product range and category.
 Globalization promotes the different culture, value, traditions and languages across the
world. It helps the company to gain new knowledge and skills to develop new strategies
and plan in the organisation.
 Due to the globalization the information regarding the business activities, product and
services flow faster. It also increases the transport and trade within the different
countries.
 It provides the ample opportunity to expand the business and diversify it to various area.
It improves the quality of goods and services and provide them via different methods like
online way or at different stores.
 Globalization increases the competition in market which force the companies to reduce
the prices of the goods and services and provide the product on lower rate to the
customer.
International trade : It refers to selling goods and service across the nation and provide them to
different customer of different countries. It helps the different countries to get the product which
can't be produced in the country due to the insufficient resources or climate. It helps to get the
best product.
Benefits of international trade
 It helps to increase the revenue of the company by addressing the different clients and
customer across the country.
 In international trade one country provides its best product to the other country which
reduces the competition in the market and also help the customer to get the product in
best price.
 It increases the employment level and efficiency of the production. The organization uses
the best method of production to reduce the cost in the market and remain competitive in
the market which ultimately improve the efficiency of the production.
6

Benefits of globalization and international trade to UK
Globalisation and international trade provide various benefits to the UK economy and
businesses. It provides the cheap labour to the company which reduces their production cost and
help them to gain the higher market share. Globalization help them to promote the product across
the world and get the better price of their product. It increases the competition in market which
increases the quality of the product and services. Globalization helps the companies to get the
investment from the investor and develop their business in different countries.
International trade help the UK business to acquire the variety of resources from the different
countries and get the best output. It helps the company to improve the efficiency of the
production by providing the best quality raw material. It reduces the competition in the product
or businesses in which UK is best.
A. Ratio analysis
1. Current ratio : current assets / current liabilities
RON ltd MES ltd
current assets 1360 1020
current liabilities -760 -1040
current ratio -1.7894736842 -0.9807692308
2. Gross profit margin ratio : Gross profit / net sales
RON ltd MES ltd
Gross profit 720 364
sales 2150 1512
GP margin ratio 0.3348837209 0.2407407407
3. Operating profit margin ratio : operating profit / sales
RON ltd MES ltd
operating profit 470 174
sales 2150 1512
OP margin ratio 0.2186046512 0.1150793651
7

4. Debtor turnover ratio in days = Average debtor / net sales * 360
RON ltd MES ltd
debtor 900 680
net sales 2150 1512
Debtor turnover ratio
(in days) 150.6976744186 161.9047619048
5. Creditor turnover ratio in days = Average Creditor / net sales * 360
RON ltd MES ltd
creditor -360 -400
net sales 2150 1512
creditor turnover ratio
(in days) -60.2790697674 -95.2380952381
B. NPV calculation
Israel project
Year Cash inflows PV factor @ 2% Discounted cash inflows
1 1500000 0.980 1470588.23529412
2 1500000 0.961 1441753
3 1500000 0.942 1413484
4 1500000 0.924 1385768
5 1500000 0.906 1358596
Total discounted cash
inflow 7070189
Initial investment 1800000000
8

NPV (Total
discounted cash
inflows - initial
investment) -1792929811
South Korea project
Year Cash inflows PV factor @ 2% Discounted cash inflows
1 500000 0.980 490196.078431373
2 1100000 0.961 1057286
3 250000 0.942 235581
4 1220000 0.924 1127091
5 1400000 0.906 1268023
Total discounted cash
inflow 4178177
Initial investment 1800000000
NPV (Total
discounted cash
inflows - initial
investment) -1795821823
Interpretation : From the above calculation it can be concluded that both the project of South
Korea and Israel gives the negative NPV. So they did not have to select any project because both
projected resulted to loss in the company.
CONCLUSION
The report summarised the different elasticity of demand and determine the decision of
purchase the products via the price elasticity. It can be concluded that globalisation and
9

international trade help the company to gain the market share, cheap labour, scare resources and
huge customer in the market. The fiscal policies help the economy to maintain and control the
money and tax rate in the nation.
10

REFERENCES
Books and Journals
Bhattarai, K. and Trzeciakiewicz, D., 2017. Macroeconomic impacts of fiscal policy shocks in
the UK: A DSGE analysis. Economic Modelling, 61. pp.321-338.
Das, A.K. and Tamuli, J., 2017. Emerging factor markets in Indian agriculture: Water and rental
of capital goods. In Indian Agriculture after the Green Revolution (pp. 46-62). Routledge.
Etzioni, A. and Lawrence, P.R., 2016. Socio-economics: Toward a New Synthesis: Toward a
New Synthesis. Routledge.
Haynes, M. and Grensing, G., 2018. Battle Lake Business Retention and Expansion Strategies
Program.
Jaqua, D. and Schaffa, D., 2016. How to Catch Capone: The Optimal Punishment of Interrelated
Crimes. Available at SSRN 2831590.
Khakee, A. and Hull, A., 2016. An Ex-Ante Evaluation of an Urban Project through Property
Value Increases: An Hedonic Price Approach. In New Principles in Planning Evaluation (pp.
121-158). Routledge.
López-Cózar-Navarro, C., Benito-Hernández, S. and Platero-Jaime, M., 2017. The influence of
cooperative relations on geographical expansion and diversification strategies in family
firms. International Business Review, 26(4). pp.764-773.
Oliver, M.J., 2019. Whatever Happened to Monetarism?: Economic Policy Making and Social
Learning in the United Kingdom Since 1979. Routledge.
Richter, G. and et.al., 2018, April. Stress-based statistical modeling of induced seismicity at
various production types. In EGU General Assembly Conference Abstracts (Vol. 20, p. 12487).
Young-Speirs, M. and et.al., 2018. Host defense cathelicidins in cattle: types, production,
bioactive functions and potential therapeutic and diagnostic applications. International journal of
antimicrobial agents, 51(6). pp.813-821.
Online
Types of growth strategies. 2019. [Online]. Available through :
<https://www.1819.brussels/en/growing-your-business/growth-strategies/types-growth-
strategies>
11