International Trade and Finance Report: A Comprehensive Analysis

This report provides an overview of international trade and finance, focusing on financial markets and capital allocation. It explores the background of financial markets, including the role of financial instruments like loans and bonds, and the impact of interest rates. The report examines capital allocation within both domestic and international markets, highlighting the roles of banks, central banks, and private firms. It also discusses the challenges of industrialization and trade policies, using the case of India as an emerging economy, and concludes with the importance of international trade for business organizations. The report also touches upon the role of Aviva Plc in the financial market and the impact of events like Brexit on international trade. This assignment is designed to bring up the understanding of financial markets that may aid in gaining knowledge of international finance and trades.

International trade and finance

Executive Summary
Purpose of this report is to bring up the understanding of financial markets that may aid
in gaining knowledge of international finance and trades. International trade can be know as
exchange of various things like capital, goods, and many more at global level or in different
territories. In most countries, type of commercialism is being considered as a significant share of
GDP. In contemporary time period, every single organisation is looking forward to trade at
international level so that they can improve their reputation and profit margins both. This have
impacted positively on economic condition of nations. It is being found that this form of trade
majorly helps in enhancing Gross Domestic Product (GDP) share of a country. On the other
hand, it is required for business organisations to have proper funding facilities so that business
can be done at international market.

Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................1
Background of financial markets.....................................................................................................1
Capital allocation within domestic economy...................................................................................3
Capital allocation within international markets...............................................................................6
Evaluation of emerging economy (India)........................................................................................7
Challenges due to industrialisation and trade policy.......................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

Introduction
International trading referred to transferring of goods, capital, resources and many other
things at different nations. It has been analysed that globalisation has influenced both small and
medium level organisations to do business at international level. (Antras and Foley, 2015). Aviva
Plc, which has its head quartered in London was founded in year 2000 and is deaking in
financial services. General and life insurance, investment administration along with pension are
some of products that this company majorly offers to its clients. This report is going to show
position of financial markets and along with this, it will also showcase Capital allocation among
domestic and international markets. Challenges that can be faced by a country and trade policies
which will help in completing the understanding of international trade.
Background of financial markets
The financial market can be defined as any market where trade of different securities is
being done. It includes equities, bonds, medium of exchange and derivatives. A financial market
is filled with different activities in which business people do trading. It is required for
organisations to look into various aspects like securities, derivatives and etcetera while trading at
international level. With the help of this, company tries reduce transactional costs. In present
context, securities refer to stocks and bonds through which trade can be done in an appropriate
manner (Ahn, 2011). Financial markets in all over world plays a crucial role for business
organisations that are doing their business at international or at domestic level. Investors majorly
gets influenced if the financial market of UK will stay strong. In previous years, mostly
organisations did not have much options through which their own assets can get increased with
the help of their own money. Banks used to offer very less amount as interest which was between
5 to 10 %. But as financial markets like NYSE took a rise, various organisations and business
people started investing their capital among various equities, derivatives and many more
(Bergstrand, 2011).
Financial market tools
It is being found that financial market instruments or tools can be cash or derivative.
These two main bodies contains different tools and these are discussed beneath:
Cash Instruments: These are the instruments, whole value can be derived directly from
market. Some of its tools are:

Loans: Lending of money from one person, organizations, financial institutes to other
entities, people or company with agreed interest rates can be known as Loans.
Bonds: It is another type of financial tool, a bond can be considered as a security of debt.
Issuer majorly owes the holders a debt which stays obliged to pay them interests along with the
principal amount.
Deposits: A type of bank account which helps a holder in withdrawing or depositing the
money.
Therefore, these are some financial tools which plays a crucial role in running the fiscal
market. On the other hand, interest rate consists with vitality which helps in improving economic
conditions of United Kingdom.
(Sources: Interest rate of United Kingdom, 2018)
According to the above graph, Bank of England have clearly mentioned that they are
going to hold interest rate with the amount of 0.5 percent. On the other hand. it is being found
that business firms requires to have proper funds so that they can attain specific goals. Their first
option stays on financial market through which they can generate money for themselves. Some
fund raising techniques that has been made by banks and financial institutes are loans in various
forms like mortgage, secured, unsecured, conventional and many more. In previous years, people
were not aware about trade agreements and government also did not allowed companies to
introduce these at market. Thus, organisations had just one option to lend money from domestic
Illustration 1: Interest rate of United Kingdom, 2018

area only. But, when financial market came in front, companies started taking loans from foreign
financial institutes as it was allowed. There was an initiative that was taken by many countries
named as general agreement on tariffs and trade (GATT). It was signed by almost 23 countries in
the year of 1947. Reason of developing this treaty was that to remove all the quotas and tariffs
(Bodie, 2013). This was done to promote international trade. In present context, some of
financial markets are mentioned below: Capital market: This sort of financial market consists of long-term debts or equity which
are majorly being bought or sold. With the help of this, companies or business persons
can easily save profit which they have earned for a longer period of time. Aviva can use
capital market to sustain at marketplace for a longer period of time at international level. Money market: This is a kind of market where financial devices that carries high
liquidity along with short term funds are being commercialised. Through this, Aviva can
easily improve its liquidity. This may aid them in borrowing or lending funds from
financial institutes at market with ease. Majorly, this type of lending process can be
helpful in for company for one year only. Because after this time of period, it is necessary
for company to pay back the borrowed money (Manova, 2012). Cash or spot market: It is a type of market in which financial devices or products and
services are majorly being traded in order to make delivery in an appropriate manner.
Aviva can easily exchange its services in other countries because it is a public financial
market.
 Derivatives markets: Under this type of financial market which keeps concentration on
forthcoming contracts or options, that can be derived from different forms of assets or
capital.
Capital allocation within domestic economy
It is being analysed that in modern era, financial markets majorly help in improvising
allotment of capital; whether it is a small or big organisation (Czinkota, Ronkainen, and Moffett,
2011). More than 65 nations that are developed in nature and their financial sectors; mainly tries
to invest in those business organisations that are generating high revenue instead of making
investments in firms that are not growing. It can be said that financial markets have majorly
impacted positively on United kingdom's economic conditions. This is only possible, if
organisations that are doing business at domestic level keeps on generating high revenue. In

present context, under domestic environment where capital is being allotted is being given
below:
 Banks: In United Kingdom, there are many private and public banks that are helping
those organisations which are doing business at domestic level. In order to make small
and medium level business companies much stronger, government has made various loan
policies where they need to pay less percentage of interest (Ohlin, 2011).
Interest rates set by Central and world bank: Most of the time, it's the responsibility of
central or world bank to set the interests that other banks will put on loans which they'll lend to
various organisations. For an example: World Bank only lends money to organisations that are
performing well in the market. This totally depends on various things like credit score of
company and many more.
Role of central banks in capital allocation: Role of both Central is that they define
outflow and inflow of money in domestic market. According to this, it has been analysed that
financial institutions takes initiatives as per policies that has been set by these banks (Vernon,
2011).
Private firms: This is another element which helps in improving domestic economy. It is
an innovative idea that aid in understanding the concept of return of interest that an organisation
carries. Investors: It is much required for investors to keep an eye on different aspects and then
decide about the organisation in which they will invest the money so that major benefits
can easily be gained.
 Government: This is another approach that helps in allocating capital within domestic
economy. With the help of different policies, it can be said that government majorly helps
in enhancing liquidity of business firms which are doing business at small level.

(Sources: UK Inflation Rate, 2017)
From the above mentioned graph, RPI was around 3.9% in the ending of 2017 and it is
still increasing. Apart from this, United Kingdom is keeping an aim around 2.0% as a target.
Some compelling advantages which are traversing money related market are mentioned below:
 Monetary market is a powerful zone in which exchange of cash is occurred which helps
in upgrading the liquidity in viable way. With the assistance of this, some exercises are
effectively supporting up and helping them in enhancing the accessibility of budgetary
terms.
 With the assistance of budgetary market, association are effortlessly ready to assess the
better accessibility of the assets in best way (Ohlin, 2011).
All these are the powerful method for budgetary market that aides in enhancing the
residential economy by allotting the capital. It additionally leads in influencing the worldwide
components of miniaturized scale financial keeping in mind the end goal to actualize every one
of the progressions in viable way.
Illustration 2: UK Inflation Rate, 2017

Capital allocation within international markets
An international market can be defined as a market which is spread in all over world and
where business firms are doing their operations (What is Foreign Investment, 2017). It has been
found that, companies that are doing business at international level majorly deals in different
sections and try to achieve their targets. This helps them to make profit or generating revenue
higher than firms at domestic level which are competitors of them. High profitability means
heavy market share which aid companies in doing business at international level. When Brexit
took place, it made exchange rates to become more volatile in nature. This impacted positively
on Foreign Direct Investment (FDI). Apart from this, as given by LSE (2017), FDI comprises
investors who invested on different start ups. They mainly keep an aim to improve their existing
capitals. This It is required for business organisations that are doing business at international
level to keep on looking into different aspects like changes in trade policies, taxation which can
put impact on their business or on profit. It is being found that there are many ways through
which allotment of capital are being done at international markets (Vernon, 2011). These are
given underneath: International entities: Some of big banks like World and BRICS majorly helps small and
private banks who are doing their business at international level by providing them funds
as per their needs and requirements. Major aim of these international entities is to allocate
capital to governmental agencies so that standardisation of citizens can be developed or
for social welfare. Private investment organizations: General Atlantic, Aviva and Berkshire Hathaway are
some of examples of financial private organisations that allocate capital to business firms
that are doing business at international level. Company first looks at the returning
capacity of money which was lend to them previously. This helps them in coming to a
decision that if they can lend money to business firm or not. Regional trade agreements: Regional trade agreements can be done in between two or
more nations. It is being found that relationship among nations should be strong enough
so that any changes can easily be adopted by one another in less duration. Here, Free
trade agreement with EU is a very best example of this type of agreement (Bergstrand,
2011).

 FDI: Foreign Direct Investment (FDI) is viable that aids in developing the nation
financial positions. With the assistance of this, there are some part of FDI which helps in
drawing outcomes in which organization can easily develop in much effective and
efficient manner. In this the developing nations are effectively putting impact on growth
of themselves through various ways.
Along with this, it is being found that all sources that discussed above are helping them in
bettering and subsidizing. On the other hand, all the capital finances are much successful and
effective as well. In this unique circumstance, each organization needs to incorporate
experienced and additionally talented individual who deal with every one of the variables which
are non-controllable by the organization (Crawford, 2011).
Evaluation of emerging economy (India)
Economy of India can be stated as one of those economies that are growing with faster
rates (Posner, 2011). It can be said that there are various elements which are related to economy
of this country and it helps business firms in enhancing productivity and profitability at the same
time. In current situation, India comes on 30th position in all over world in terms of doing
business. Here, an individual can easily do business with ease. Some of factors in present context
are given below: Stable banking: India is having over 19 banks in which around 4 of them are
international. Biggest bank of this country is Reserve Bank which allocates funds to other
banks and looks at different areas like inflow and outflow of funds (Helpman, 2011).
Another responsibility of this country's banking sector is to keep up the prices of Rupees.
If this bank will not go through different aspects then recession might take place which
India cannot afford right on time. Government interference: India, which is the most populous democratic nation carries
less interference of government. Because of this, liquidity market stays much convenient
for citizens of this country so as to do business at international level. Less interference of
government of India at this phase makes it easier for citizens of this nation to do business
in successful manner (Eaton, Kortum and Kramarz, 2011).
 Private sector rise: Economic conditions of India is mostly affected by private sector. It
is being found that small and medium sized organisations in modern India is rapidly

making high profit. Because of this, firms are helping nation in enhancing economic
conditions in much effective manner. (Helpman, 2011).
(Sources: Financial Market of India, 2018)
Henceforth, it can be said that economic conditions of India are rapidly increasing in
nature. High number of job opportunities and great number of start-ups by entrepreneurs with
innovative ideas can be considered as some of major factors that are helping this country in
growing in much effective and efficient manner.
Illustration 3: Financial Market of India, 2018

Challenges due to industrialisation and trade policy
According to (Puri, 2017), countries faces ample number of challenges in specific areas
i.e. trade policy. Some of significant challenges impacted badly on their economic conditions.
Recession and unemployment were two major factors that can be considered as challenges which
have impacted badly on economic conditions of India (Eaton, Kortum and Kramarz, 2011). As
per the calculation which was done in the year of 2016, population of India is 1.25 billion and
birth rate than death rate is a little high. Because of this, it can be said that unemployment
problem is being considered as major issue for this country. Depending on this, it can be
analysed that living standards of individuals will improve slowly. Some of challenges in present
context are given below: Competition from global market: Crawford, (2011), competition at international market
is increasing rapidly. Because of this, India is going through with ample number of issues
which has impacted negatively on business of this company. Imbalance of BOP: If differences are there in import and export of goods within a
country, then this can be taken as a challenge for the nation. Therefore, it is required for
them to keep on looking into these aspects so that everything can go in a smooth manner
(Wagner, 2012).
 Unemployment: Because of high competition, organisations majorly do not offer jobs to
people who are not qualified enough. In present time, unemployment rate in India is at
very high rate. This happened because of less qualified citizens which can be stated as a
negative impact on growth of this country.
Henceforth, it has been critically analysed that in current time, India needs massive
changes in order to face forthcoming challenges. On the other hand, it has also been found that
around 140 million jobs has been produced by India but they require for about 300 million jobs
in order to reduce all the risks and unemployment. Apart from this, all of these above discussed
factors that can be considered as some major challenges that are being faced by India. In order to
overcome them, it is required for government of this country to make policies and try to
influence people to get more education so that organisations of both domestic and international
level can hire them (Vernon, 2011).

Conclusion
From above mentioned report, it has been summarised that global commercialism can be
considered as one of biggest conception which is helping countries in exchanging of goods,
services, capital, resources and many other things. Apart from this, financial market plays a
crucial role in helping out organisations in running business at both domestic and international
level. Both domestic and international banks are helping in terms of allocating funds to
organisations of different countries so that they can hit their targets.

References
Books and Journals
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Czinkota, M., Ronkainen, I.A. and Moffett, M.H., 2011. International business. Wiley.
Manova, K., 2012. Credit constraints, heterogeneous firms, and international trade. Review of
Economic Studies. 80(2). pp.711-744.
Ohlin, B., 2011. Interregional and international trade. Vol. 39. Harvard University Press.;
Cambridge.
Vernon, R., 2011. International investment and international trade in the product cycle. The
quarterly journal of economics. pp.190-207.
Bergstrand, J.H., 2011. The gravity equation in international trade: some microeconomic
foundations and empirical evidence. The review of economics and statistics. pp.474-
481.
Posner, M.V., 2011. International trade and technical change. Oxford economic papers. 13(3).
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Helpman, E., 2011. Imperfect competition and international trade: evidence from fourteen
industrial countries. Journal of the Japanese and international economies. 1(1). pp.62-
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Eaton, J., Kortum, S. and Kramarz, F., 2011. An anatomy of international trade: Evidence from
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Wagner, J., 2012. International trade and firm performance: a survey of empirical studies since
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Crawford, B., 2011. Economic Vulnerability in International Relations: East-West Trade,
Investment, and Finance. Columbia University Press.
Online
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