Analysis of International Trade Finance and Investment Strategies

This report delves into the realm of international trade finance and investment, examining the intricate workings of financial markets and their role in allocating capital. It begins by defining key terms such as international trade, finance, and investment, emphasizing their importance for organizational success. The report then explores various financial markets, including stock, bond, commodities, and derivatives markets, elucidating their functions and significance. A significant portion is dedicated to analyzing the UK's domestic economy, its import and export dynamics, and the allocation of capital for international trade, with detailed interpretations of charts illustrating trade relationships. Furthermore, the report investigates capital allocation between the UK and the US, highlighting the benefits of foreign direct investment (FDI) and applying trade theories like gravity, absolute advantage, and comparative advantage to explain the trade relations. The report concludes by addressing the challenges faced by developing countries like Kenya, particularly those related to industrialization and trade policies, such as informality and poor market access. The report provides a comprehensive overview of international trade finance, its intricacies, and its impact on global economies.

International Trade
Finance and Investment

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................9
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
International Trade refers to the trading of the goods and services which is conducted
internationally by the organizations in the different countries spread all over the world (Auboin
and Blengini, 2019). Finance refers to the management of financial resources within the various
organizations. Investments refer to the amount of money invested by the organizations so that
they are able to attain the goals and objectives effectively and efficiently. For the firms it is quite
important that a relevant importance is given to all of them so that they are able to target higher-
level of profitability without problems and issues in the future. In this assignment, detailed focus
will be made on evaluation of financial markets work in order to allocate capital. Additionally,
specific analysis on critical evaluation of key challenges faced by a country due to
industrialization and trade policies will be considered as a part of this project.
TASK 1
Financial Markets refer to the markets where the dealing of different types of transactions
can take place and therefore the management of funds can be done here easily by the different
types of organizations (Bonfiglioli, Crinò and Gancia, 2019).
There are different types of financial markets which exist within an economy. It is
essential that these markets are considered for the purpose of an explanation about some of these
markets is provided as follows-
Stock Market- Stock Market has trading of different types of shares of the public
companies is done effectively and efficiently (Brini,Amara and Jemmali, 2017). There are
different prices of the shares of various companies which are traded here and thus in this way the
companies can make sure that they are able to enhance their overall reputation and goodwill
effectively and efficiently by trading their shares in the stock market.
Bond Market- In a Bond Market, there are different types of opportunities which are
offered to the companies to secure the money required for the purpose of financing a particular
project or investment (Caballero, Candelaria and Hale, 2018). Thus in this market, there is a
requirement that the investors identify the best company which can offer good returns on the
investment in the bonds which will help the investors in getting a decent return on their
investment.
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Commodities Market- Commodities Market has dealing of different types of
commodities takes place effectively and efficiently. Therefore, in this market the business
organizations are required to place their commodities and ensure that these commodities can find
out the right buyers.
Derivatives Market- In this market, there are derivatives or contracts whose value is
based on the market value of the asset which has been traded. Therefore in this way this is a
financial market where the commodities are effectively managed leading towards the attainment
of higher-level of efficiency and effectiveness.
Background of financial markets-
The financial markets are those markets where the dealing in money and other financial
matters takes place. Thus it is quite important for the companies to consider investing in such
markets because it will be quite helpful in achieving the different types of financial goals and
objectives in the right manner.
Banks, Capital and Money Markets work in a dynamic way so that a proper allocation of
the money can be made within the economy. In an economy there is an importance of all of them
because all of them can be quite helpful in ensuring that the financial system can work in a
smooth manner.
Forms of money-
There are three forms of money i.e. Commodity Money, Fiat Money and Fiduciary
Money. All of these forms of money are quite important to be considered so that the economy
can run in the right manner.
Purposes of money-
The purposes for which money is desired in the economy is that the different types of
activities require money for operating in the right way. Thus the desire of money is due to
different types of reasons due to which its demand is there in the economy and this helps in
ensuring that the demand generation works properly
U.K. has a substantial financial market in which there is a presence of different types of
organizations (Chang, Luo and Chen, 2020). Thus these organizations make sure that they are
able to contribute a substantial amount of investment in these markets so that a boost can be
given to the functioning of the economy.
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The presence of Financial Markets in an economy is quite important for the growth of
any economy in the long-term. In this way the economy can witness higher-level of growth if the
different types of financial markets are able to perform in the right manner. Thus it is important
for the parts of financial markets to function properly which will therefore help in ensuring that
the short-term, medium-term and long-term goals and objectives can be attained effectively and
efficiently. Therefore the growth of the GDP of a country is also dependent on the performance
of the financial markets.
U.K. Domestic Economy-
Interpretation of the chart- In the above discussion, about 40.9% of import sources are
in U.K. Are from other sources, 13.9% are from Germany, 9.0% are from China, 8.6% from
Netherlands, 8.6% from U.S., 5.8% from France, 5.2% from Belgium and Luxembourg, 4.1%
from Norway and 3.9% are from Italy (Trade, 2020).
The economy of U.K. has a big impact in the world (Coşar and Demir, 2016). This is so
because it has the 5th largest GDP in the world. The service sector accounts for almost 80% of the
U.K. Economy. Thus it can be said that the Economic growth in U.K. Is quite strong and thus is
able to ensure that the relevant progress can be made in the market in the future effectively and
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efficiently. The country is able to contribute a significant proportion of its GDP to the World
GDP. In this way U.K. is able to contribute significantly to the global economy.
Capital Allocation in Domestic Economy for International Trade-
Figure 1 United Kingdom major export desinations (2018)
Capital Allocation in U.K. for International Trade is a decent one. A substantial part of
the U.K. Economy’s capital is allocated for the purpose of carrying out International Trade.
Interpretation- According to the Pie Chart, 40.7% of U.K.’s exports are with Other
countries, 15.7% with U.S., 10.3% with Germany, 7.4% with Netherlands, 7.0% with France,
6.3% with Ireland, 5.3% with China, 4.2% with Belgium and Luxembourg and 3.1% with Italy
(Trade, 2020).
Thus it can be said that the U.K. economy majorly focuses on international trade as a part
of maintaining a higher growth level of the GDP as well as the maintenance of strong trade
relations with the different countries in the world (Goldfarb and Trefler, 2018). Thus in this
manner the U.K. economy can see a major boost up because trading with different countries in
the world is enough for the economy to be able to ensure that higher-level of growth can be
witnessed.
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As the money in U.K. economy flows through financial markets capital allocation for
international trade is done by the organizations. This is done by ensuring that identification of
those countries is done where there can be higher-level of profits in exporting the goods and
services. Thus in this way the country has selected different countries in the world where it
benefits the most from its exports and thus is able to attain a higher-level of income without
facing problems and issues.
By exporting its goods and services in these selected countries U.K.’s economy has seen
a considerable boost as it is able to identify the scope of maximizing the resources available and
ensuring that the goals and objectives which are set in front of it are achieved. Thus this has
helped it in not only boosting the GDP but also in becoming one of the top economies in the
world. The different countries in the world rely on U.K. so that it is able to provide them with a
substantial share of goods and services which is also helpful for it in forming good trade relations
with these countries.
Capital Allocation in U.S. by U.K.-
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Figure 2 US inward FDI stock from UK, 2014
U.S. and U.K. are both one of the top economies in the world. Therefore, they also share
good trade relations between each other (Gundogdu, 2016). Thus there is a substantial amount of
Capital Allocation in U.S. by U.K.
Interpretation- According to the pie-chart, Manufacturing contributes to about 37% of
the total FDI investment in U.S. by U.K., Wholesale trade contributes 7%, and retail trade
contributes 1%. Information contributes 5%, Depository Institutions contributes 13%, Finance
and Insurance contributes 12%, Professional, Scientific and Technical services contributes 3%,
Real-estate and rental and leasing contributes 1%, Other Industries contributes 21% (US-UK
Trade and Foreign Investment, 2016).
Thus it can be said that by investing in U.S. through the route of FDI U.K. has the
following benefits-
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 Greater return on capital- U.K. is able to receive a greater return on capital by
investing in the economy of U.S. Thus in this way the country is able to make sure that
by enhancing its investments it is able to get a substantial return.
 Boost to the GDP- U.K. is able to provide a substantial boost to its GDP growth rate as
by investing in the FDI of U.S. it is able to enhance its level of income and overall
revenues which ensure that the different types of goals and objectives are attained by it in
a highly effective manner.
According to Gravity theory, International Trade in International Economics is a model which
predicts the bilateral trade between two countries on the basis of the distance between these
countries. This helps in identifying the way the trade can be carried out properly. The trade
between U.K. and U.S. Is based upon this model.
As per the Absolute Advantage theory, absolute advantage refers to the advantage of a party to
produce a particular good or service more efficiently than the various competitors in the market.
The trade between U.K. and U.S. Is also based upon this theory because in it the competitive
advantage lies with U.S. As it has a broader market as compared to U.K.
According to Comparative Advantage theory, in free trade an agent produces more and
consumes less of a good in which they have a comparative advantage. The trade between U.K.
and U.S. Is also based on this particular theory because the excess production of goods by U.K.
Is sold to U.S. As per their trade agreement.
Summary-
Thus it can be summarized that Financial Markets are of a significant importance to a
particular country, they have a background which has to be understood. Domestic Economy
of a country has different elements on which it is dependent. Capital Allocation in Domestic
Economy for International Trade is needed to boost the economy, Capital Allocation in
International Markets like U.S. help U.K. in ensuring better trade relations with the country
and increasing the overall economic growth rate.
TASK 2
Kenya is a developing country which is located in Africa. The economy of Kenya faces
different types of challenges due to the industrialization and trade policies. Some of the
challenges which it faces are explained as follows-
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 Informality and poor sustainability of industries- Most of the industries which are
located in Kenya are informal in nature and furthermore they are also poorly sustainable
(Jensen, Quinn and Weymouth, 2016). Therefore due to this reason the industrialization
in the country has not taken place as expected and this is affecting the country. Whenever
the country plans to do development and focus on industrialization this is a major
challenge which is faced in this process as the top players from all over the world do not
want to set their industrial base in the country due to the lack of a good market and the
opportunities.
 Poor market access- Some good industries in Kenya which produce good products and
services to be provided to the various customers are not able to attain the desired success
due to the poor market access. Kenyan industries are not able to access their market
properly and thus this creates an impact on them as they are not able to sufficiently
expand their level of profits effectively and efficiently. Therefore due to this reason the
Kenyan industries are often lagging behind their African counterparts. This also affects
their overall level of income.
 Restrictive legislation and regulation- The industries in Kenya are restricted by the
legislation and regulation. Therefore in this way these laws and rules create an impact on
the country’s industrialization. Strict government policies keeps foreign industries away
from investing in the country and thus in this way this creates an overall impact on the
industries in the country thereby hindering the whole process of industrialization.
 Higher cost of credit- The industries in Kenya face financial problems because the credit
is not available for them immediately when they require it (Jessel and DiCaprio, 2018).
Therefore if the industries have to obtain credit then they are required to pay higher for
obtaining it which therefore affects them. Thus due to these reasons some of the
industries do not want to invest in Kenya which creates problems related to
industrialization in the country.
 Poor infrastructure- In Kenya, there is a problem related to infrastructure because the
industries are not provided adequate infrastructural facilities which are quite necessary
for them to function in a proper manner. In this way this can lead to different types of
problems and issues and thus in this way this can create different types of difficulties for
these industries leading towards problems in industrialization.
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 Lack of access to Land- Kenya’s industries face problems in accessing the land. Thus
due to this reason many large-scale industries are unable to properly set their base in the
country and thus this creates an impact on them. As they have problems in having a
proper access to land it creates certain difficulties for them. Also it deters foreign
industries to set up their base in the country as without proper access to land most of
these industries cannot manage their operations effectively in the country which in turn
creates an impact on their overall level of profits.
 Lack of quality products- Kenya’ industries are not able to consistently provide quality
products to their customers. This is the reason due to which the industries of this country
are not able to provide their customers with good products and thus in this way the
development of industrialization has not taken place fully in the country making the
country lag behind other neighbouring countries in the terms of industrialization.
 Expensive energy- Kenya does not has adequate infrastructure related to energy and thus
in this way the energy is quite expensive in the country (Keller and Utar, 2016).
Therefore in this manner this creates a lot of difficulties related with industrialization in
the country significantly impacting it. The energy prices are quite high in the country and
no special concessions are provided to the industries which further deter them from
setting up their base in the country and expand their overall level of operations.
 Lack of innovation- Nowadays the market is quite dynamic in nature and it thrives on
innovation. Thus in Kenya this lack of innovation is adversely affecting the market as the
large-scale industries are largely reluctant to move here due to this reason. Therefore in
this way the Kenyan industries are impacted. Lack of innovative opportunities in the
Kenyan market affects the industries as they become reluctant to set up their base in the
country due to this reason.
 Inadequate capacity of the markets- The Kenyan markets have inadequate capacity to
properly set up industrial base in the country. These markets are not supportive for the
large-scale industries in setting up their base of operations effectively and efficiently.
Therefore in this way an impact is created on the large-scale industries which want to set
a base in the country as they are deterred from setting up their base due to this reason.
 Lack of attention by the government- The Kenyan Government has not paid adequate
attention towards the industrialization process in the country. Thus in this way the
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process of industrialization is adversely affected due to this reason and this creates an
impact on the industrial growth of the country as the growth rate is slowed down due to
this reason and therefore this creates a significant impact on the overall level of industrial
operations.
 Slowdown in the economy- Kenya is a developing country and thus its economy is not
able to sustain the demands which are put by some of the large-scale industrial bases
(Kozlowski, 2017). Thus due to these reasons the industrial development has not taken
place fully in the country and this has impacted the overall economic progress of the
country.
 Ineffective industrial policies- Kenya’s industrial policies have not been as effective in
ensuring that the industries are able to be competitive. Therefore due to these reasons the
industrial development has no taken place effectively in the country. Thus in this way
these policies can create an impact on the country.
 Politics of the country- The elected governments in Kenya have been ignoring the
industrial sector for quite some time (Liu and Chu, 2019). Thus due to these reasons the
country has not been able to progress in the right manner in the terms of industrial growth
which therefore puts an impact on the overall level of growth. Further the politics of the
country deters the good companies to set up their industrial base here which further
impacts the industrial growth of the country as it is not able to increase by a fair margin.
 Lower level of industrial penetration- The industries in Kenya are largely limited up to
their urban bases (NGUYEN, 2020). They have not been able to sufficiently penetrate the
rural base effectively and efficiently. Therefore due to this reason the overall level of
industrial development has not taken place fully and effectively in the country thereby
hindering the overall industrial progress.
Trade policy- Trade policy of a country reflects its outlook towards the business and
trade and thus in this way ensures that the country is able to attain a right outlook towards
business and is able to attain the goals and objectives effectively and efficiently (Patel,
2016). The Trade Policy of Kenya is explained as follows-
 Open trade regime- In Kenya there is a lot of openness in the trade regime compared to
the approach which was adopted by the government earlier on. Thus this has ensured that
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