International Trade Finance and Investment: Capital Allocation Report

This report provides a comprehensive overview of international trade finance and investment, focusing on capital allocation within both domestic and international markets. It examines the UK's economy, detailing its market orientation and the impact of the pandemic on its GDP. The report explores strategies for capital allocation, including infrastructure development, support for large-scale organizations, mergers and acquisitions, debt payment, dividends, and foreign direct investment. Additionally, it evaluates the economy of Japan, highlighting challenges faced due to industrialization and trade policies, such as deflation, aging population, and trade barriers. The report concludes with recommendations for overcoming these challenges and fostering sustainable economic growth through strategic trade and investment initiatives.

International Trade Finance
and Investment
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Executive summary
The report is written for developing a proper understanding on International Trade Finance and
Investment. The information related to the investment and trade helps the investor to know the
opportunity and by this they are able to invest their capital on economy with the hope of getting
higher return. This investment help in increasing the GDP by enhancing the level of production
of the industry. In this a detail description is provided on capital allocation within domestic
economy through international trade and finance and capital allocation within international
market. Apart from this, the report also covers an evaluation of the challenges faces due to
industrialisation and Trade policies.
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Table of Contents
Executive summary..........................................................................................................................2
INTRODUCTION...........................................................................................................................3
Background of financial market.............................................................................................4
MAIN BODY...................................................................................................................................6
Capital allocation within domestic economy...................................................................................7
Capital allocation of the UK in international market:......................................................................8
TASK 2............................................................................................................................................9
Evaluation of the economy:....................................................................................................9
Challenges faced by japan in the market:......................................................................................10
CONCLUSION:.............................................................................................................................13
RECOMMENDATION.................................................................................................................13
REFERENCES..............................................................................................................................14
INTRODUCTION
International trade is a concept which define how the goods and devices are changed in
international market. The product are purchased and sale between the two foreign country. The
countries exchanged the product so that they can gain the advantage of the opportunity cost and
make their international terms goods. Exchanges are done through Export and import.
International trade financing is the process where financial helps are provide to the organisation
s0o that capital can be allocate for go in international market. Through this way the economy of
the two nations interact with one another and help them to develop their country. Various
institution, co-operative banks provides financial support in international trade financing and this
support is provide by using different types of instrument such as letter of credit, bank guarantee
etc. so that capital can be allocate(Dasgupta, Ghosh and Ghosh, 2021)
With the globalisation that concept of international trade gain major importance and so to
smooth this function various helps are giving in the foreign trade. International investment is an
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strategy which is used by the investor and the organisation to invest their amount in the
international market by investing in diversify activities. This is done with the motive of acquiring
various assets in the foreign country other then the home country.
There are various tools and method through which investment can be made and by this
the economy of the country is enhanced and helps in building a good relation with one another.
This report is prepared by the researcher by playing the role of junior consultant who works for
the international organisation, whose head is in London. The organisation has many investor
who are ready to invest their capital in the company. But before signing a contract with the
investor the company want to gain a detailed understanding of the above two concept.(Khan and
Ahmad, 2021)
Background of financial market
Financial market is a place where buying and selling of the financial instruments take
place. Here financial assets are exchanged to raise the revenue for further activities of
diversification. Financial market is also known as wall market. In a simple language it is a place
where various investor and businesses interact with each other and build the relationship so that
fund can be allocate for the company and investor can also raise their personal income. There are
two types of financial market i.e., money market and capital market. Money market is the place
which deals in short term instrument which can easily be converted into cash when every there is
a need(Grath, 2021). The short term money instrument are those which can be liquidized in less
than a year. This market is created so that government or other organisation can allocate the
money when there comes an uncertainty. Capital market is for the long term instrument where
buying and selling of asset is done for longer period of time. Stocks, bonds are some type of
capital market instrument. There are two ways through which capital market instrument can be
raise that are primary market and secondary market. If there is direct interaction between the
investor and the business then it is primary market and if there is some mediator involve in it
them that market is known as secondary market (Xiong and Sun, 2021)
Some type of financial market are as follow:
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 Stock market: In this type of market shares of the company are being traded publicly.
Stock market helps the companies to list their shares for public offering and the price of
the share is decide by the organisation itself.
 Bond market: It is also called as Debt market or credit market. Here debt securities of
the company are being traded in the market. Mostly the debt securities are of
government. Theses are being traded so that capital can be raise to pay the amount to the
debtors.
 Derivative market: It is the market place were price of the underlying assets are being
decided by the interaction of one or more party by making a agreement which is based on
the price of assets (Xiong and Sun, 2021)
 Commodities market: Natural resources like oil, coal etc. are traded in this market
because the price keeps on fluctuate.
Role of World trade organisation:
There is various role that is played by WTO some of them are
1) It helps in enforcing rules and regulation so that smooth functioning can be done while
trading internationally.
2) It also plays a significant role were they organisation solve the disputes between two
companies while doing international transaction.
3) It also helps in increasing the transparency between decision making process.
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MAIN BODY
The economy of the UK is highly market oriented, it is developed then rest of the nations.
From the overall world economy it is on number fifth rank with regard to nominal Gross
domestic product. The main dominant sector of the country is Service sector which help in
economic development. With the hit of the pandemic the UK economy is slower down in very
fast pace. The GDP in 2020 was 1.96 trillion pounds and in 2019 it was 2.17 trillion pounds
which reflect a fall of 216 billion pounds in the overall GDP in one year(Hebous and
Johannesen, 2021) . This large drop is caused by the pandemic which create the problem of lock
down due to which many industry suffer the damage. The unemployment rate of the nation has
drop by 4.5 percent in just three month from august to October 2021. it is tenth largest position
by purchasing power parity but ion 2020 only a raise of 2% is seen on the PPI. The economy of
the UK is Very much Globalised economy in comparison from the England, Wales, Northern
Ireland. In 2019, it is on fifth rank in terms of exporting and importing f goods and services.
(Ngouhouo, Nchofoung and Njamen Kengdo, 2021)
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Capital allocation within domestic economy
Capital allocation is the technique which is used by the business in determine the various
ways through which capital can be raise. The capital can be allocated in two ways through
domestically or internationally. With the motive of allocating fund domestically the main
purpose of the business is to distribute their resources in such effective manner by which profit
can be raised for the development of the nation economy. UK allocate their capital in
domestically so that they can prepare themselves for any uncertainty and can manage their
stability. There are two ways which UK can use to develop domestic economy and can enhanced
trade and investment (Milner, 2021)
 Infrastructure development: One of the best way for capital allocation within domestic
economy is by investing in building the infrastructure. They government invest in
buildings, roads, power, supplies so that they can provide support to household and the
firm. They try to provide world class infrastructure to their citizen which also help them
to gain attention of the foreigners. If the investment is done on building the country’s
infrastructure, then it will give long term profit and also increase the trade finance and
investment opportunities. UK is number producer of steam engine and tab-coo
manufacturer. So to allocate the capital within the country UK government think
investing in infra is will be the greatest source in economic growth. Government is using
various approach through which they can boost the morale of their investor to invest in
infrastructure. UK is inviting both public and private sector in it so that best infrastructure
program can be providing.
 Support large scale organisation: UK government is providing various financial support
to those big organisations who need capital for diversification, expansion or for paying
debts. This is done by the aim that it will help the organisation to enhance their revenue
and profit. They provide various loan, schemes, subsidiary to the businesses. This will
help the country to as the large organisation export their product in international market
which help them in gaining foreign existence and develop the domestic economy. The
effective and efficient utilisation of resources will help in increasing the production. This
also help in international trade and investment.
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Most of the support that country provide is on agricultural sector because they are the exporter of
the country. Some other source through which they allocate their capital within the domestic
economy is on hospitality industry, many small and medium enterprises to pay the debts.(Ali,
Dogan, Chen and Khan, 2021)
Capital allocation of the UK in international market:
Capital allocation in the international market is that fund of the domestic country is
invested I the international market. In simple the UK'S capital is invested in Japan for the
purpose of expansion. This also helps the country to enhance their Gross domestic product.
International trade finance and investment is also done with the motive of establishing a long
term health ration with one another and boost the economy of both the country. This also helps in
diversifying their currency in different part of the world but this is also a riskier approach.
Some of the method of allocating capital in the international market are:
 Merger and acquisition: Merger and Acquisition are two different concept of going
internationally. In merger the two company decided to joint hand together and start a new
business by forming a new entity. For example the company of UK and India merger
with one another. Acquisition means when a larger company purchase the small company
taking all their assess and liability. For example the large company of UK acquire the
small company in Japan.. this is the most effective way of allocating the capital in the
international market as it helps in increasing the GDP of the economy. This is also done
so that they can good relation with one another(Leibovici, 2021)
 Debt payment: Debt payment is the method where one party borrow money from another
party with a promise to pay it back after certain period of time. This is done by the
country to develop their economy by lending the amount to other country. By this the
country can maintain their economy and develop in so that citizen can gain advantage out
of it.
 Dividends: Dividend is the amount that is paid by the company to their preferences
shareholder. The amount of profit is paid on regular basis. This is done so that company
country can allocate their money on international market and can gain the foreign
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currency. UK provides high dividend to their shareholder which motivate the foreign
investor to invest in their economy development.
 Foreign direct investment: It is the method of cross border investment in which the
investor of the domestic country invest in other country to gain some ownership right. It
will help the UK as their investor are getting right in the foreign country organisation
which helps them to gain more profit on it (Iheonu and et. al., 2021)
TASK 2
Evaluation of the economy:
Japan is a developed country where the economy is free market..The country has the
fourth largest economy in the world. The country rank third in terms of nominal gross domestic
product. The economy of the Japan falls by 4.8 percent in 2020 after the pandemic COVID 19.
The economic growth of the country was just 0.7 percent in 2020. The nation produced more
technological advance product from rest of the world. In context with the purchasing power
parity the economy of Japan is in fourth position (Wu, Wu and Zang, 2021). In 2020, PPI was
102.8 LCU. In terms of developed country it is number second position around the global.
Nation is also the member of G7 and G20 submit. The gross domestic product of japan is 41,637
US dollar according to the international monetary fund. The country is fourth largest importer
and exporter of the world. Japan imports crude oil, petroleum gas, coal to other country and
export cars, passenger and cargo ships, integrated circuit. In august 2020 japan export around
5.23 trillion and import 4.99 trillion but this figure increases in 2021 after the hit of second way
of pandemic where in august 2021 export was 6.61 trillion and import was 7.24 trillion which
causes a deficit in trade balance (Zhang and et. al, 2021). It is on 29th in context on : ease of
doing business” and is the tough competitor of other country. The nation is highly advanced and
the per capital income of the citizen is also high. It is on number fourth position in most
economically stability and on third largest consumer market (Nathaniel, Murshed and Bassim,
2021)
Some of the trade organisation of which japan is also a pat are APEC,OECD,G20.World
trade organisation and CPTPP. The population of japan in 2020 is around 12.58 million.
According to sector wise the GDP of the nation is transport sector 23141 JPY billion,
service sector 22018 JPY billion, Manufacturing sector it is 118976 JPY billion. In august 2020
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the labour force of the country is 68.7 percent. Inflation rate is deficit by -0.1 percent in 2020.
the population of the country is below the poverty line. Unemployment rate in august 2020 is 3
percent with the youth employment is only 4.7 percent (Sugiyama and et. al, 2021). It is one of
the leading nation for manufacturing the electroni9c goods. Japan is also focusing in producing
high tech product after the pandemic hit as it will help the country to bear all the losses occur
during Covid 19. in terms of innovate the nation is at the top most who do innovation a lot
(Obstfeld, 2021).
In the year 2021 the nation enjoys a positive trade balance of more than $59.2 billion. The major
agreements that they sign with other countries like china, unites state and Thailand. The US and
Japan has signed a major trade agreements for certain agricultural and industrial goods so that
bilateral trade can be maintained which is known as USJTA agreements (Calder, 2021). With
several countries there is a free trade agreement that they signed some of the countries are
Australia, India, New Zealand and many more. Japan financial system is so developed that there
commercial banking system accepts various deposits from their citizen as well foreign investors
(Fragkos and et. al, 2021)There are various specialized government owned financial institution
which provides variety of funds to their domestic economy, this is the main reason why the
japans economy is well developed. There capital market also offers different public and private
debts. Money market which offer banks a source of liquidity and provide the Bank of Japan with
a tool to implement monetary policy (Ikram and et. al, 2021).
Read more at: https://commodity.com/data/japan
Challenges faced by japan in the market:
Industrialization: Industrialization is the time period were many economic and social
changes occurs in japan. The transformation take place between various human group towards
the establishment of industrial society. This changes change the whole process of agricultural
activities into manufacturing process. Here the labour uses various machines through which
human activities re done using the tool and equipment so that mass production can be take place.
This is an effective approach for growing the economy toward developed economy and also
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helps in enhancing the labour division. Man power dependency has reduced as technology
innovation in automation reduce the power(Angeles, 2021)
There are some of the challenges that are discussed below which are faced due to
industrialisation:
 Challenge 1: One of the biggest challenge that is faced by japan is higher increases in
unemployment rate. Many industrialization policies are framed which are implemented
on human which create this problem. As due to the industrialisation era many labour
work are done by using machine as it help them in smooth functioning as well as higher
production in less time which force many industry to limit the number of labour in the
organisation.
 Challenges 2: there is no proper distribution of income which is also a another problem
faces in japan. With the improvement of industrialization activities labour are paying less
wages as many of the works are done by machines and equipment which force the
industry to pay low wages. This also create a problem were the source of income is
reduce and wider people loss their job. So this built a income gap between the people and
the industry.
Trade policy: Trade refers to export and imports og goods and services between the nations.
Wth the globalisation many rules and regulation are made by various country so that they can
restrict the export and import activities. Exports and import is determined by the size of the
market and on domestic and international investment. These laws are made so that disputes can
be settle by the country and a relationship can be built between them. This agreements also help
in making a proper decision. Increasing investment and revenue is the main aim of the trade
policy. In trade policy many taxes, quotas and tariff are implements on type of goods and
services. Trade policies are of various type and depend upon country to country. There are so
many policy like national trade policy, international trade policy, bilateral trade policy and many
more. It also helps in increasing competition in the market and country can also develop their
economy through it. The japan has multiple type of trade policy these are liberalisation,
reducing the tariff rate, import quotas etc., (Belke and Domnick, 2021)
some of the challenges faced by japan after the trade policy are:
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 Challenges 1: Government earn major of the revenue from the tax, so they impose havey
tax rate on imported goods which create heavy burden on the people to purchase goods
from the other country. This also reduce the growth of the economy. The export rate also
depend upon the types and size of the product so industry face the problem as the rate is
not fixed.
 Challenges 2: Licenses provided by the company is also limited. They do not provide
licence on those goods and services which is harmful for other nation. Strict rules and
regulation are made and the companies has to follow them in order to prevent
environment. Japan also faces the issue as many companies do not have license because
of that there is no proper growth which leads to low export and imports between the
countries.
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CONCLUSION:
From the above report it is been concluded that international trade finance and investment
is important if the country want to develop their economy. It helps the industry to expand their
market and can allocate their capital in international market. Financial market is a place were
many securities, bonds are traded in foreign country. There are two ways through which
company can allocate their capital that is domestically or internationally. Apart from this it is
also been concluded that international investment helps in increasing the profit and improves the
overall efficiency. This report also interpreted various industrialist and trade policies which crate
challenges for the people of the nation.
RECOMMENDATION
From the above challenges it can be recommended that countries want to overcome from
the problem of trade and investment than countries should cultivate more to make partnership
with the local region. Local partnership will helps them to build good reputation which also helps
the countries to gain more knowledge about how they can face the problem in smoother manner.
They should also develop more strategic planning and partnership with other nation so that
international trade and finance can be improves and good inter country relation can be build.
There are some strategies that can help in international trade plan like strong offerings, gifts and
grants, supply chain logistics, international law compliance and many more. The tax rate are
being decide upon the basis of sector and the product that is imported or exported and that should
be fair manner so that heavy burden cannot be made to those small and medium enterprise who
want to grow in international market.
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REFERENCES
Books and Journals
Dasgupta, B., Ghosh, A. and Ghosh, B. eds., 2021. Neoliberalism in the Emerging Economy of
India: The Political Economy of International Trade, Investment and Finance. Routledge.
Khan, Y. A. and Ahmad, M., 2021. Investigating the impact of renewable energy, international
trade, tourism, and foreign direct investment on carbon emission in developing as well as
developed countries. Environmental Science and Pollution Research, pp.1-10.
Grath, A., 2021. The handbook of international trade and finance: the complete guide to risk
management, bonds and guarantees, credit insurance and trade finance. Kogan Page
Limited.
Xiong, T. and Sun, H., 2021. Structure and dynamics of global capital and international trade:
Analysis of the relationship between exports and foreign direct investment (FDI) from
2001 to 2006. International Journal of Finance & Economics. 26(1). pp.542-559.
Hebous, S. and Johannesen, N., 2021. At your service! The role of tax havens in international
trade with services. European Economic Review. 135. p.103737.
Ngouhouo, I., Nchofoung, T. and Njamen Kengdo, A .A., 2021. Determinants of Trade
Openness in Sub-Saharan Africa: Do Institutions Matter?. International Economic
Journal. 35(1). pp.96-119.
Milner, H. V., 2021. Resisting protectionism: Global industries and the politics of international
trade. Princeton University Press.
Ali, S., Dogan, E., Chen, F. and Khan, Z., 2021. International trade and environmental
performance in top ten‐emitters countries: The role of eco‐innovation and renewable
energy consumption. Sustainable Development. 29(2). pp.378-387.
Leibovici, F., 2021. Financial development and international trade. Journal of Political
Economy. 129(12). pp.000-000.
Iheonu, C. O and et. al., 2021. Does economic growth, international trade, and urbanization
uphold environmental sustainability in sub-Saharan Africa? Insights from quantile and
causality procedures. Environmental Science and Pollution Research, 28(22). pp.28222-
28233.
Nathaniel, S. P., Murshed, M. and Bassim, M., 2021. The nexus between economic growth,
energy use, international trade and ecological footprints: the role of environmental
regulations in N11 countries. Energy, Ecology and Environment, pp.1-17.
Angeles, J .G. B., 2021. The effects of international trade on human development: a comparative
analysis of the Association of Southeast Asian Nations (ASEAN) and the Southern African
Development Community (SADC) (Doctoral dissertation).
Belke, A. and Domnick, C., 2021. Trade and capital flows: Substitutes or complements? An
empirical investigation. Review of International Economics.
Obstfeld, M., 2021. 6. International Capital Mobility in the 1990s (pp. 201-261). Princeton
University Press.
Wu, M., Wu, J. and Zang, C., 2021. A comprehensive evaluation of the eco-carrying capacity
and green economy in the Guangdong-Hong Kong-Macao Greater Bay Area,
China. Journal of Cleaner Production, 281, p.124945.
Zhang, X., and et. al, 2021. Remanufacturability evaluation of end-of-life products considering
technology, economy and environment: A review. Science of The Total Environment, 764,
p.142922.
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Sugiyama, M., and et. al, 2021. EMF 35 JMIP study for Japan’s long-term climate and energy
policy: scenario designs and key findings. Sustainability science, 16(2), pp.355-374.
Calder, K.E., 2021. Crisis and compensation: Public policy and political stability in Japan.
Princeton University Press.
Ikram, M., and et. al, 2021. Exploring the nexus between economic complexity, economic
growth and ecological footprint: Contextual evidences from Japan. Sustainable Energy
Technologies and Assessments, 47, p.101460.
Fragkos, P., and et. al, 2021. Energy system transitions and low-carbon pathways in Australia,
Brazil, Canada, China, EU-28, India, Indonesia, Japan, Republic of Korea, Russia and the
United States. Energy, 216, p.119385.
Online:
<https://oec.world/en/profile/country/jpn>
<https://commodity.com/data/japan>
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