Report on International Trade, Finance, and Investment Dynamics

This report provides an in-depth analysis of international trade, finance, and investment, with a particular focus on emerging economies and the UK's financial system. It explores the background of financial markets, capital allocation in domestic and international contexts, and the theories underpinning trade, finance, and investment. The report examines the roles of central banks, monetary policy, and financial regulations, along with the operations of domestic and international capital markets, including commercial banks and bond markets. Furthermore, it evaluates the challenges faced by emerging economies due to industrialization and trade policies, considering the roles of the London Stock Exchange and the Alternative Investment Market (AIM). The report concludes with a critical assessment of the issues discussed, offering a comprehensive overview of the complex interplay between international trade, finance, and investment.

International Trade,
Finance and Investment

EXECUTIVE SUMMARY
The report refers to the variability in global capital and financial markets in developing
economies. Main areas of concern are about how stock markets operate to equitably distribute
within the same national and international industry for exchange, expenditure and growth
reasons and assess the main difficulties an evolving country faces as a result of industrialisation
and foreign policies. In the global sector, international capital exchanges have a definite
framework in which governments, people and companies lend and spend across national borders.
Promoting transactions that allow companies to expand in their company based on decision-
making and risk assessment is the main function of the financial sector. The excess wealth will
be used and the economy improved is summarise in this report.

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................2
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Background of financial market...................................................................................................1
Domestic economy and capital allocation...................................................................................2
International economy and capital allocation..............................................................................6
Theory of trade, financial and investment...................................................................................9
Contributions in international trade.............................................................................................9
QUESTION 2...................................................................................................................................9
Evaluation of emerging economy................................................................................................9
Critical evaluation of challenges................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCERS ...........................................................................................................................14

INTRODUCTION
In business economy, the concepts related with exchange of goods and services from one
nation to other is known as international trade (International Trade, 2019). This includes two
main activities such as import, flowing of goods and services within nation from other countries
and export in which country goods and services are sold in overseas market. The broad term, that
define the activities that are connected with debt, credit, banking, financial leverage, money
outflow and inflow and investment is called finance. In accounting the term investing is the
activity that is related with distributing funds to different operation in order to generate sufficient
income in future.
In this report, background of financial market, capital allocation to domestic and
international market is discussed. In addition this report, evaluation of emerging economy,
evaluation of challenges that country faces due to industrialisation and trade policies are
discussed.
QUESTION 1
Background of financial market
Financial markets are consider to be the main part of smooth and valuable operation
related to capitalist economy. It is a wider term, that is related to a marketplace in which trading
of stocks or securities take place. Financial market is mainly a workplace where different traders
sell and buy assets that also include stock, bonds, foreign exchange, derivation market and ferox
market etc. The main role of financial market is promote transaction that would encourage
businesses to invest their investments on the basis of their decisions and risk evaluation. This
will use surplus resources and strengthen the economy (Anderson and et. al., 2014).
The domain where investing in loans and securities are sold and bought is known as debt
market by brokers and large financial institution (Akhtar and Jones, 2014). It is consider that
investing in debt primarily include lower risk as compared to investment in equity but it provide
lesser return on investment. Different types of bonds are consider to be the best and popular form
of debt investment and its price fluctuate less in price as compared to any other investment.
Some of the common example for debt instrument are bonds, loans debenture etc. for example
Company ABC is preparing to give $100 million of assets to the bond-holders. Equity market
includes the part of ownership within company that make enough profit from dividends. These
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market are volatile in nature as in case of insolvency of company stakeholder may lose total
stock. There are number of factors that causes equity market to fluctuate such as political, social,
economic events or governmental.
Illustration 1: share and bonds movement
Domestic economy and capital allocation
In UK, the economic is independent, developed and focus on international trade which
remain moderate around 1.4% is 2019 and is predicted to be 1.3% in 2020. It is noticed that
customer spending have a major role to drive the overall economy, but due to drop in housing
market and slow employment level can reduce the economy in next year. It is also observed that
decreasing business investment and slow household spending hold back the overall GDP in the
future years. These forecasts believe that somehow the initial agreement on a Brexit contract will
result towards slow economy development as compared to previous year (Armijo, 2012).
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Illustration 2: UK economy
Banking system of UK.
The UK banking, was first started in the 17th century in the Kingdom of England from
that time it has developed so much and provide number of useful financial services that helps to
run different business and private transaction. In recent time the banking sector of UK has four
major bank like Lloyds Group, Barclays, the Royal Bank of Scotland (RBS), and HSBC.
Illustration 3: Market share of UK bank.
The above chart shows the number of bank in UK with their actual market share in the
recent time (Banks of UK, 2019). It was observed that at the time of financial problem the HBOS
and Lloyds TBS merged together to form the biggest bank on UK. Therefore, it is noticed that
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banking is subjected to number of competition over the past 10 years with the viewpoint that
market is concentrated having considerable obstacles to entry (Chen, 2015).
1. Role of central bank.
The Bank of England was first founded in 1694 and gets nationalised in 1948 and
become independent in 1997. There have been number of roles that are played by BOE such as
deciding interest rate that help to maintain the UK inflation rate of about 2%. It also oversees the
actual supply of funds and monetary resources in the economy to keep sufficient liquidity,
manage the UK foreign exchange reserve that help to settles international debts, it also acts as a
lender of last resorts so that funds are provided to build effective liquidity and remove shortage
of funds (Chow, 2013).
2. Monetary policy
In economic term, the action taken by the central bank of UK in order to make decision
regarding cost of borrowing funds and the total money available in economy is known as
Monetary policy. An effective monetary policy have the main aim to strengthen the entire
economic circulation that is to avoid recessions and maintain the inflation at low. The target of
UK monetary policy is to keep CPI 2% +/-1 as low inflation is regarded as the crucial factors of
high investment. On the other side, monetary policy of UK is focused to keep the rate of
economy stable and sustainable which help to reduce the unemployment level (Vijayakumar,
Sridharan and Rao, 2015).
3. Regulations governing the financial system
Since the 2008 financial crisis, a seemingly endless series of new laws, guidelines,
regulations, commissions, committees and agencies has been set up to either modify or enforce
the existing regulatory system and move it forward. There are number of bodies that regulate the
financial system in UK such as FPC (Financial Policy Committee) is obliged to determine,
manage and make specific action in order to eliminate the ongoing and future risk that endanger
the resilience of the UK financial system (Desierto, 2015). It mainly determine the growing
issues to financial system so that commercial bank and investor would increase the capital to
avoid the losses. The prudential regulation authority is also a part of BOE that is responsible to
handle prudential process in almost 1700 banks, credit unions, insurers and main big investment
companies of UK. On 1st April 2013, FCA replaced the FSA considering some main goals such
as:
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 Build a suitable degree of protection for customer.
 Develop and defend the financial system integrity in UK.
 Ensure appropriate competition in the context of clients.
There are some more regulators in UK that have put a better importance on prudential
regulation such as micro prudential that includes laws for individual business entity like lender,
insurance company commercial bank. As well as macro prudential laws to protect the entire
financial system.
Domestic money market:
A) Savings: The process of keeping a specific part of current earning in order to meet the
future requirement is known as savings. In short run, saving help to increase the deposit of bank,
support in buying of securities and improve the cash holding. There is a systematic way to
measure the compete national saving which is the overvalue of national income above
consumption and other tax payments. Thus, it is stated that saving is most crucial in short run
that aid to enhance the economic progress of UK as it related to investment (Ge, 2011).
B) Loans: in modern time, it is rare for customer and companies to have enough cash in
hand to meet its expensive requirement or investment in different sources. Therefore, they
require loans for long term that help to reduce the impact of operating cash flow and build the
credit worthiness. In an economy there are number of advantage of long term loan such as it
maintain appropriate cash flow, lessen investors interference by developing chances of potential
investments (Frederic S. Mishkin, Stanley Eakins, 2012). It also help to promote leasing facilities
of assets such as household can easily lease car.
Stock Market
1. London stock exchange: The London Stock Exchange (LSE) is the UK's largest
financial market and consider to be the Europe's biggest. Originating in 1773, the national
markets were incorporated into the Great Britain and Ireland stock exchanges in 1973,
recently called LSE. The London Stock Exchange makes it possible for businesses to
raise funds from outside lenders. The primary objective is to give companies,
stakeholders and middlemen, like investment managers, with affordable, productive and
very well-regulated economies (Swenson, 2012).
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2. AIM: The Alternative Investment Market (AIM) is a London Stock Exchange (LSE) sub-
market specifically to help smaller firms enter the stock market's capital. It enables the small
business firm to generate capital by itemization on public exchange which better flexibility in
trade regulation as compared to primary market. From the time of its inauguration there have
been 3600 small businesses from entire world that have been part of AIM. All kind of small,
growing, early stage venture are helpful through the policies of AIM as they can easily raise
funds in order to complete the business activities (Vijayakumar, Sridharan and Rao, 2015).
International economy and capital allocation
International capital markets
International capital markets have the defined system in the international domain, where
authorities, businesses and individuals lend and invest through national borders. There are
number of advantages of international capital market such as it provide better returns and have
cheaper borrowing costs and provide number of future opportunities to companies in various
nations that help to decrease reduce risky factors.
1. Commercial banks:
a) Savings: It is revenue that may not be spent and spending that is postponed. Saving
strategies involve setting aside money, for instance, in a savings account, a retirement portfolio,
an equity fund and even cash. This also involves cutting spending, such as fixed expenses.
Saving appears closely linked to external savings, since the latter offers the latter with a funding
source. By not using profits to buy manufactured products and services, resources can be spent
directly by using them to generate productive assets, like machinery and equipment (Shenkar,
2012).
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b) Loans: In Finance, loans are borrowing from someone like associations or other
institutions to other people, organisations, etc. The lender (i.e. the borrower) imposes a loan and
is typically responsible for paying debt interest until it can be recovered, as well as repaying the
loan principal balance (John, Barton and et. Al., 2006). At commercial bank, there have been
number of long term loans such as bonds, debenture etc. that are borrowed by particular
companies to another dealing at international market to meet the business requirement (Swenson,
2012).
2. Bond markets:
The bond market, frequently referred to as the credit market that is a fiscal global market
at which stakeholders can exchange in debt securities authorised by governments and
corporations. Eurodollar debt is an United states denominated in dollars debt provided by an
external company and kept in both the U.S. and the country of origin of the borrower in an
international entity (Chow, 2013). To global corporations and foreign nations government
Eurodollar securities are an essential source of funding.
3. Foreign Exchange markets
The foreign exchange market often recognized as ferox market is indeed a worldwide
market over - the-counter (OTC), which sets the rate of exchange for currency across the world.
This provide legal and authorised framework to parties so they can easily sell, purchase,
speculate currencies and exchange the financial instruments. The international banks, ferox
brokers, commercial firms, central bank, financial institution, hedge funds dealer are some major
part of foreign exchange market. Foreign exchange markets are listed on the grounds that there
will be two types of currency markets such as spot of forward according to kind of transaction
(Shenkar, 2012).
4. Global stock markets
A stock exchange is a controlled exchange platform that brings together sellers and
buyers of different economic instruments like shares, securities and bonds.
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Illustration 4: Global stock markets
There are number of major stock exchange market in the world that are beneficial to
make a legal and strong network among traders of financial securities (Chow, 2013) Some of
these are discussed below:
 Toronto Stock Exchange, Canada
 Shenzhen Stock Exchange, China
 London Stock Exchange, United Kingdom
 Hong Kong Stock Exchange, Hong Kong Tokyo Stock Exchange, Japan
5. Derivatives
In financial term, a derivation is a financial security that have a specific with depended
upon the reliant or a group of particular assets (John Lewis, Devesh Kapur and Richard Webb,
2017). These foreign exchange derivation are consider to be the a legal agreement among
different parties on the price that might be modify according to the value of underlying assets.
Equities, securities, assets, currency, exchange rates, and price indices are the most important
fundamental capital of derivatives. These funds are usually bought from brokerages.
6. Non – bank financial institutions
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