International Trade Finance & Investment: Market Evaluation Report

This report provides an in-depth analysis of international trade finance and investment, focusing on the allocation of funds in both domestic and international markets. The report evaluates financial markets, specifically comparing the UK, US, and Chinese markets, highlighting their respective strengths and weaknesses. It delves into the background of financial markets, capital allocation within domestic and international contexts, and includes a detailed analysis of the US economy. The report also evaluates an economy of choice, examining key economic indicators. Furthermore, it critically assesses the challenges posed by industrialization and trade policies. The report concludes with recommendations aimed at maintaining a balanced risk-return relationship within both domestic and international markets, offering valuable insights for students of finance.

International trade finance
& investment
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Table of Contents
Executive Summary ........................................................................................................................3
1. Background of financial markets.................................................................................................4
2. Capital allocation within domestic economy...............................................................................5
3. Capital allocation within international markets...........................................................................6
3.1 Analysis of US Economy......................................................................................................6
4. Evaluation of an economy of choice............................................................................................7
5. Critical evaluation of challenges that the country faces due to Industrialisation and Trade
Policies.............................................................................................................................................8
6. Conclusion...................................................................................................................................9
7. Recommendations......................................................................................................................11
References......................................................................................................................................12
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Executive Summary
This report is based on allocation of funds in domestic and international markets. In this
project evaluation is completed on two type of markets which are domestic market i.e. UK
market and in International market i.e. US market and China market. United Kingdom market is
highly developed market whereas china market has close ended economy and mixed socialised
market economy. United Kingdom market is most globalised market which help various others
market in order to expand different type of business economies. Whereas china's market include
three main world's largest stock exchange market. When it comes to United State market, it is
comes to know that this is mixed and highly developed market. US market contain largest GDP
and net worth while comparing with world. This is most powerful economy in terms of
technological advancement across world. Whereas this project include, different standards set by
GATT. Furthermore the impact of world bank and different agreements between multinational
organisation. It include financial theories and concepts which are applying in real business
context. In last some suggestions are provided to maintain risk return relationship and options in
context of domestic and international markets.
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1. Background of financial markets
Financial markets are those marketplace where securities are traded. They are also known
as capital market as it primarily serves the purposes of raising money for businesses and
investors to enable them to grow their capital investment. It acts as an intermediary between the
two parties – investors and businesses and acts to facilitate streamlined fund mobilisation in
between them. Market run according to the agreed regulation system to allow smooth trading of
large amount of capital (Leamer and Stern, 2017). Markets also offers companies and investors
to offset their risk. Financial markets play a very important role in a nation's economy as they
accommodate direct flow of savings and investment in the economic cycle by creating a bridge
between the wealth of individual and the wealth of institutions for both short term and long term
financial needs of both the sides. It facilitate capital accumulation, allocation and distribution and
arranges for the free flow of money and production of goods and services in the economy. Below
mentioned are some types of financial markets:
 Stock market – This market trades in shares of the public companies. Companies list
their shares with a price on it, which is then purchased by investors. It further runs on the
free flow of demand and supply between the buyers and sellers. Investors and companies
earn with the increase in valuation of shares. For example, New York Stock Exchange,
London Stock Exchange, etc.
 Bond market – This markets offers bond securities such as treasury bonds, corporate
bonds, municipal bonds, etc. While shares represent capital, bond represents debt. Bonds
are issued by government and companies which are then purchased by investors. Bonds
are redeemed as per the pre-agreed conditions.
 Commodities market – This market offers natural resources as commodities like corn,
gold, oil, etc. It has been given position of separate market as trade of natural resources
is very volatile (Weber, Staub-Bisang and Alfen, 2016). Actually commodity is not
traded, only symbolically their prices are determined through demand and supply
exchanges between investors.
 Foreign exchange market – This market offers currencies such as Dollar, Pound, Euro,
etc. as securities. Various banks, foreign exchange brokers, investors, investment
management companies participate in this market to determine the prices of currencies.
It is a free market and runs according to forces of demand and supply.
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 Derivatives market – Derivatives refers to the contract between two or more parties
based on an underlying financial asset (Lester, Mercurio and Davies, 2018). This market
offers derivatives as secondary securities whose value is derived from the primary
security that it is linked with. It deals in futures and options contracts related to financial
products like bonds, commodities, stocks, currencies, etc.
2. Capital allocation within domestic economy
Economy refers to an area of inter-related activities of production and consumption with
a view to allocate scarce resources optimally. Domestic economy refers to the economy within
specified geographical boundaries and influences trade, investment and industry of all the goods
and services produced within those boundaries and get influenced by other factors that
determines its shape, size and magnanimity such as political environment, legal environment,
socio-cultural environment, etc. It is measured by tools such as gross domestic product (GDP).
Capital allocation refers to the process of distributing resources with an aim to improve the long-
term stability and value creation for the stakeholders (Hsieh, Boarelli and Vu, 2019). Financial
markets helps in allocation of capital uniformly across all the sectors of the economy. For
example, as per World Bank, UK has the sixth largest economy in the world and the sectors that
contribute most to its GDP are services, manufacturing, tourism, construction, etc. It has free
capital market i.e. prices of securities traded here are determined by the market forces of demand
and supply with least intervention of government. Its largest capital market is its stock market
which is known as London Stock Exchange. It plays a very important role in allocation of capital
which is highly relevant for the domestic economy of UK. Capital market inspires whole
financial market of UK as suggested in the capital market theory. It is a mix of financial,
investment and retirement plan for the investors in the country taking into consideration all the
relevant factors such as coherent market hypothesis and capital asset pricing model. Capital
allocation helps process funds into various parts of the economy facilitating and improving its
efficiency and effectiveness in advancing trade and industries into the country and giving out
opportunities that lead to development of various new industries and company into the bigger
picture of the economy. Macro economic factors takes into place and highlights the fluctuations
that require direct and indirect influences on the performance of various economic and social
indicators of the domestic economy. They steer ahead the economical growth of the country and
lead their economical development in concurrence with social and environmental development.
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3. Capital allocation within international markets
Just like in the domestic economy of UK, financial market plays an important role in
allocation of capital internationally as well. They facilitate smooth flow of resources between
different sectors of the economy within various financial markets that operate in different parts
of the world in cohesion with each other (Ghosh and Yamarik, 2019). For example, there are
various companies of US that are listed on New York Stock Exchange as well as London Stock
Exchange. This will help them allocate the resources available to them between the investors of
the two stock exchanges, facilitating allocation of capital internationally for trade, investment
and development purposes. These markets are situated in their domestic economy and are
regulated by the local laws (Karolyi, 2016). Economic spectrum of most of the countries lies
between left-right debate such as US economy is right leaning i.e. capitalistic while Russian
economy is left leaning i.e. socialistic. Economy of country is also inspired by the political
ideology of the country like US and could also be different from them like China, while its
politics is communist, it has a closed yet capitalistic economy. It shows difference in between the
capital allocation policies of the two countries and difference in their trade, investment and
development policies.
3.1 Analysis of US Economy
US has an open economy which is free from government intervention and therefore, its
financial market are more powerful and impactful over the worldly affairs. It plays stimulating
role in allocation of capital resources to drive the development of infrastructure, industries and
trade reforms. As capital market theory predict the progression of the capital market in terms of
trade off between returns expected by investors. Open economy of US attracts large numbers of
investors and seeks asset rise in comparison with the inherent risk involved in the free financial
market of the country. It further employs arbitrage pricing theory and efficient market hypothesis
in accordance with modern portfolio theory to give maximum advantage to investors. It has
biggest companies of the world on-board and therefore, is successful in attracting investors from
all parts of the world (Bonnitcha, Poulsen and Waibel, 2017). It nudges the spending of investors
to keep the economic cycle of the country smoothly flowing while stimulating the adoption and
adaptation of environmental rules, legal regulations and taxation reforms. It has pushed forward
the concept of Environment, Social and Governance (ESG) among its investors that is soon
gaining prominence among the companies in the market as well. This concept focuses on aiding
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non-financial information of the companies to assist financial information in order to create
value for the global investors. Value created for the global investors helps in distributing
resources so that new businesses and enterprises are promoted. Multinational companies act as
drivers to these global changes and patronise the development of many companies and
infrastructure of developing economies under them.
4. Evaluation of an economy of choice
Economic growth rate, Inflation, unemployment and current and capital accounts are the
key indicators of economic performance and its evaluations. In other words it can be said that
economic growth is the concept of real GDP growth of country, Prices are so high in order to
manage goods and services, number of unemployment are increase who are able to work in the
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Illustration 1: UK GDP grew by 1.2% in December 2020. 2020

economy but actually they are not employed (Hoffman, 2019). The current and capital accounts
show the balance of the different companies which are maintain by deficit and surplus balance.
Economic growth of the country is evaluated as the most important part in economy's statics and
this will help in facilitated international comparison. If the company have a positive economic
growth then it will show the high national income and rise the standard of living. It will work on
other main objectives which are unemployment, government borrowings and many other similar
factors. This will help the country to growth across the world and manage various targets to
resolve the issues occur in countries growth (Azmi, Mohamad and Shah, 2020). Government
usually targets the inflation rates to 4% and other shown as the sign of economical problems. IN
country high inflation rate tends to impose high cost of economy like less investment, high
uncertainness and long run impact in economic growth. The first issue which is faced by country
is correct the conceptual framework of the company and determined the cost-effectiveness.
Another issue is understand the limited cost structured which are adopted by NICE. The third
issue is increasing academic pressure for ever increasing issues which directly evaluate the
economic analysis and its impact on society. Another issue which are majorly faced by the
economy is to manufacturing department which drop down to 40% in the production cost and
many other practical issues. Furthermore the progress of withdrawal agreements and basic
extension of UK which are likely to remove some uncertainties and major supports which are
related to reduction of risk of No-deal Brexit. UK domestic market is mixed and therefore,
receives both direct and indirect impact of monetary and fiscal policies of the government.
Monetary policy of Central Bank makes both quantitative and qualitative measures to regulate
inflation and deflation in the market and have subsequent impact on the money in hand for
disposal of people. Further, government rations its fiscal policy according to welfare measures
required by the people of UK. Both of these policies regulate not control investment in the
domestic market to maintain the autonomy of the market forces.
5. Critical evaluation of challenges that the country faces due to
Industrialisation and Trade Policies
The economy of UK is adopt industrialisation process, which means to adopt the primary
agriculture which are based on production and shift to manufacturing of goods. It is the period
which contain some economical and social changes that can change an individual or a group
which directly affect the industrial workers. The main characteristics which are used by economy
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are efficient use of labours activities, intense use of technologies, oppose dependency in the
market and make a strong growth in economic development. Industrialisation is used in order to
increase living standards of society. Which comes in the result of developing industry at the wide
range in the whole country and in a particular religion (Lucke and Eichler, 2016). Whereas trade
policies are follow up rules, regulations and different kinds of agreements used for controlling
exports and imports in the domestic and foreign countries. It actually determined the size and
scale which are used by both foreign and domestic markets. In the recent times the impact of
trade policies which change the investment climate for growing in the particular country. Change
management play an important role for considering the updated technologies and liberalisation
policies of the domestic country to attract more and more international organisation to grow and
expand the business operations and this will expand the global production chain supply. This is
such an important ingredient which are using for motivating domestic and international markets
to expand the business and investment contribution to enhance the power of country's
development. Trade policies include, different tariffs, quotas, taxes which are mostly considered
for inspection regulation in the country (Zhang and et.al., 2019). There are various basic policies
and issues faced by developing countries as the trading system is not work being fundamentals or
less trade liberalisation are happening in the countries. The main issues which are concern with
liberalisation and trade practice include: Development, Digital economy and Geopolitical.
Development: In UK, various strong commitment and development are used for the
growth of the country. But this is sometimes being difficult for accepting the stares (Barston,
2019). Country have to focus on different type of issues with the global finance which are related
to innovation and complete that regions growth which are unwilling to show their development
and growth.
Digital economy: Another main issue face by UK economy is to develop the digital
platform in their economy to work with the development of another countries. Digital economy
help the companies for making the wide schedule for trade liberalisation and acknowledgement.
The main challenges is to maintain the balance between the core rules and regulation.
Liberalisation is used to completing work in effective and sustainable economy.
Geopolitical: It is the last challenges which are faces by different companies. This is
related to the difficulty level which are faced by companies for achieving progress at global level
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(Herdegen, 2016). These development process which show that these situations are not
appropriate fitted for the purpose.
6. Conclusion
This report includes discussion on the financial markets and their impact on the capital
allocation in the economy. Financial market is like another marketplaces where exchange of
goods and services takes place between two consenting parties for a monetary consideration.
Products and services in which financial markets deal are securities such as shares, bonds,
commodities, boolean, derivatives, currencies, etc. Financial market is therefore divided into
various types according to the securities they trade like stock market, commodities market,
derivatives market, etc. In the file above, it was elucidated that capital allocation includes
measures that are related to drive resource distribution and the investment in order to earn
maximum profit. It involves resource management to increase the efficiency and effectiveness of
the financial security in creating additional resources that facilitate trade, investment, and
development while ensuring that profitability of the company is optimised and value of the
primary investment to the investor is maximised. This report further deals in economy and
elucidated that economy is referred to an area which involves production and consumption of
goods and services. Financial markets in the globalisation era concurs with two impacts – one
that it makes within the domestic economy and the one that it makes internationally. Economies
of the countries of the world are generally divided into left-right spectrum and most of the
economies in the world lie between the two leaning towards either. Political ideology of the
ruling government also shapes the economic ideology of the country which gets reflected in its
policies of their financial market as well. For example, US has a capitalistic government and
therefore, has open economy which favours companies while China has a communist
government and has a closed and mixed socialistic economy. Financial markets of both the
countries like New York Stock Exchange and Shanghai Stock Exchange reflect the ideologies
adopted by their country both in their capital allocation and distribution policies within their
domestic market as well as in international market. Further, economy of UK was evaluated. UK
has an open economy and its financial market is lead by London Stock Exchange. It is sixth
largest economy in the world and is one of the highest exporter in European Union. Key
indicators that measures and highlights its performances are gross domestic product, growth rate,
inflation rate, social indicators like unemployment rate, net import-export rate, etc. UK is
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constantly trying to improve its economy however got marred by challenges like the ones
presented by global recession, Brexit policy confusion, pandemic lock-down, etc. All of these
has impact on economic indicators and social indicators of the economy and creates challenges
for the economy of the country.
7. Recommendations
Efficient capital allocation is highly important for organic growth in investment amount
and improving strategic partnership between companies, industries, markets and economies.
From a company point of view, it helps finance mergers and acquisitions, re-pay debt and
improve cross-shareholding. But, combining all the companies together, is the subject matter
dealt by financial market and the economy in general. It was seen that inefficient capital
allocation could lead to depreciation in economic and social indicators (ADB, Furceri and IMF,
2016). Therefore, it is recommended that efficient capital allocation must be taken into account
at any rate. Financial markets must improve their regulatory and supervisory roles so that no
resource is distributed at ill-will which leads to loss of trade opportunities rather than building
them. Government of the country should also work closely with them however, it should keep at
arm length from intervening in operations so that free flow of market forces is not obstructed.
They should take increased use of technologies like artificial intelligence, big data, etc. to
determine the areas where improvement is needed. Economy of present era of even a sovereign
country cannot be seen in isolation at these globalisation times so even the financial markets
cannot work in isolation. They must work closely with each other as they have various
companies which are listed on two or more than two financial markets. They can also work with
international organisations like World Trade Organisation, World Bank and rating agencies like
Moody's, etc. so that they can create global strategies that are able to improve both capital
allocation at domestic as well as international level.
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References
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UK GDP grew by 1.2% in December 2020. 2020. [Online]. Available
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