Analysis of Trade Finance and Investment Strategies at London Exchange

This report provides an analysis of trade finance and investment strategies, focusing on the London Exchange Group. It examines the background of financial markets, capital allocation within domestic and international economies, and evaluates the UK's economy, including challenges faced due to industrialization and trade policies. The report covers various aspects such as risk reduction, diversification, technology development, and job opportunities in international markets. It also discusses the impact of the COVID-19 pandemic on the UK's economy and its recovery. The analysis concludes with recommendations for improving capital efficiency and managing counterparty risk in financial markets. The document is available on Desklib, a platform providing study tools and solved assignments for students.

Trade Finance
&Investment

Executive Summary
The London Exchange Group, which was created by David Schwimmer on December
30 and has its headquarters in London, United Kingdom, is being considered in this research.
The corresponding agreements are with financial institutions all around the world in order to
maximise capital efficiency and manage counterparty risk. This extensive analysis will
examine how financial markets work with their counterparts in order to decrease payment
risk, and will finish with the final report's findings.

Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................4
Main Body..................................................................................................................................4
Background of Financial Markets..........................................................................................4
Capital Allocation within Domestic Economy......................................................................5
Capital Application within International Markets..................................................................7
Evaluation of an Economy.....................................................................................................9
Evaluation of challenges that the country faced due to Industrialisation and Trade Policies
..............................................................................................................................................10
Conclusion................................................................................................................................11
Recommendations....................................................................................................................12
References................................................................................................................................13

Introduction
Trade finance refers to the set of financial tools which are used by companies to
facilitate international transactions and events (Brakman and van Marrewijk, 2020). Various
parties which are involved in the business of trade finance are – banks, financial institution,
credit rating agencies and many more. The major advantage of trade finance is that it
provided flexibility in payments between two parties’ exporter and importer because it secure
the payments of both parties. Investment refers to an expenditure incur by firm in order to
purchase an asset for generating long term wealth in future. In this report, London Exchange
Group is taking into considerations which was founded by David Schwimmer on 30
December 1801, headquarter in London, United Kingdom. The respective deals with
financial institution all over the worlds to use their capital efficiency and manage counter
party risk. In this detailed report will find out how financial market collaborate with their
party in order to reduce risk of payment and finally will conclude the result from final report
(Bhoga and Trivedi ,2019).
Main Body
Background of Financial Markets
Financial markets refers to market place where trading of securities and derivatives
done at low transactional cost. The major securities which buyers and seller deals in financial
market are shares, bonds, debentures and many more. Classification of financial market are as
follows:
 Over the counter market (OTC) - It refers to the financial market in which the
securities are traded among buyer and seller without the security exchange like
NASDAQ and S&P 500. Generally the securities which are of less cost and no
regulation require are deal under respective market.
 Money market- This refers to the market where securities which have a
maturity period of less than a year are traded among buyers and sellers.
 Derivative market- This refers to the market place where trading of derivatives
are done among buyers and seller. Derivative are those financial instrument
whose value is derived from an underlying asset. This is classify under four
categories- future, forward, options and swap.
 Forex market- This refers to the market place where trading of currencies
happen among buyers and seller of different countries. Generally trading of

securities are happen in pairs for example like-dollar and euro (Bhopal and
Trivedi 2019).
Capital Allocation within Domestic Economy
(Source: Business investment in the UK: January to March 2018 provisional results, 2021)
This refers to allocation or distribution of money among the people of economy in
order to boost the efficiency and increase the profitability (Glial, Memon and Gilal,
2021).The management of firm seeks to distribute its wealth in such a way that it generate
more wealth for shareholder.
Following are the importance of capital allocation are:
 Helps to make investment – Investment means expenditure done business in order to
purchase asset for generating long term wealth in future. When economy is available
with lot of capital or financial resources then it easy for corporation and companies to
invest in different investment avenues to generate long term wealth for future. This
would make company and economy more profitable and will also lead to rise in GDP
(Gross Domestic Development) of an economy (Dewan, and Zahid, 2020).
 Mergers and Acquisitions- Merger is a corporate strategy in which two companies
merge together in order to increase business strength whereas Acquisition is a
business strategy in which one company is acquire by another company and form new
company which is completely different from previous one. For example- If B
Corporation is acquire by a corporation and form new name which is C Corporation

then this is an example of acquisition. When there are lot of capital or financial
resources available in economy then it is easy for one company to merge with another
company or to acquire another company which is running under loss this would be
beneficial for both companies. Hence, purchasing company will acquire assets of loss
making company and loss making company will get money to pay off its debts and
settle off amount of shareholder (Reyes, Lens ink, and Hermes 2021).
 Easy to pay dividends- This refers to the part of company’s profit which to pay to
shareholder. Dividends are always paid out of companies profit when the company
earn more profit, more dividend paid to shareholder or vice versa. Retained earnings
are always earn when company earns profit and profit is directly related to capital or
financial resources allocation to an economy. Hence, when economy has huge
monetary resources this would lead to rise in profits of company and shareholders get
more dividends out of company’s profit Roberts (Chore Moraes and Ferguson,
2019).
 Easy money rotation- Capital allocation lead to easy money rotation among public of
economy. Hence people of economy always available with optimum quantity of cash
every time in their hand. Which they can use for further investment in stock, Mutual
funds and many other investment options. Hence this promotes the habit of
investment among people which will financially boost the companies’ profitability as
shares of company rise when people purchase those shares (Dary and James, 2019).
 Payment of Debt- It refers to the loan which companies take from bank in order to
either to settle disputes their financial obligation or to invest in any prospective
project. When there is rotation of money in economy then it is easy for banks to give
money to companies to fulfil their financial obligation or it is also easy for companies
to pay off their debt to bank. Hence capital allocation always be better for both
companies and banks.

Capital Application within International Markets
(Source: Avner Offer, 2021)
This refers to allocation or distributing financial resources of company outside the domestic
territory of country. Financial resource allocation among international markets is more
profitable than domestic markets because it covers the other countries’ currencies which
boost the economic scalability of domestic country.
Following are the importance of capital allocation with international markets are:
 Reduce risk- Allocation of money with international markets facilitate companies,
government and many other financial institution to borrow or invest money from
other country which reduces risk of price exchange. Price exchange generally happen
when there is up and down violation happen in prices of currency. Hence this reduces
risk as companies can exchange their currency with another country currency if they
notice that price are getting down in their home currency.
 Easily Diversification- Companies can easily diversify or change their trading
currency when they notice downfall or loss in respective currency in which they
dealing infer example- If company is dealing in US dollar and they notice downfall in
respect of their own currency then they can change their currency with another
country currency as a result of which domestic country currency rise.
 Higher returns and less borrowing cost- Generally the companies earn lucrative
returns when deal with international markets with less borrowing cost. Borrowing cost
refers to the cost incur by a business in order to raise funds from market. Hence this is

the reason which attract lot many companies or corporations to invest in international
market.
 Development of technology- Technology is highly develop in the field of
international finance. With the help of technology companies or parties can easily
deal with international currency matters with the help of their phones they can easily
deal with international money matters. Hence due to this technological innovation
attracts lot of business and corporates to invest in international market.
 Get to know rules and regulations of different currency- By investing in
international markets of different countries. A business or corporation will get to the
rules, regulations and laws of different countries. Hence this would make company
aware about their surroundings.
 Knowledge about global financial condition of different country- By investing in
international financial market a business get information about financial or economic
condition of different countries. Hence this information will help to know business
that whether they should invest in market of respective country or not.
 Lot of job opportunities- Companies those who invest in international markets
always require financial analyst to analyse the international market and decide
whether company should invest in the currency of that country or not. Financial
analyst are in highly demand now a days as every company prefer such individuals
who can take decision on behalf of company regarding investment. Hence becoming a
financial expert is a huge opportunity in today’s time.
 Good Salary hikes- Generally companies those who hires financial analyst give good
hikes and promotion to them. Hence it is an on demand skill which company see in
their individuals now a days.

Evaluation of an Economy
(Source: UK Economy Must Get More Efficient, 2018)
The economy of UK has shown tremendous growth in the field of trade finance and
investment in recent years. In 2019, the financial sector earns 132 billion pound in the
economy of UK which is 6.9% of GDP of country. But during 2020 the economy of
respective country has shown a downfall because of COVID-19 pandemic disease which
spread in whole world. Due to which complete lockdown was announced, so many
businesses were closed due to which people have lost their jobs.

As of now the economy of respective country is now start recovering as covid cases
are start getting down which making economy back on its feet once again. People are now
start moving to their jobs, Businesses are now start earning profit which is a good sign of
rising country’s GDP.
The economy is start recovering not as the same pace as it was on pre covid stage.
During lockdown, every single person was at home and their source of income was
completely stopped. People were lost their jobs and businesses were also shut down. The loss
of UK country that time was around more than 500 billion pound, which will take years to
cover it. At present respective country is now in better financial position which makes it clear
that it is now recovering from that loss. Hence it is predicted that in next one or two years the
economy of that country will be in much better position.
Evaluation of challenges that the country faced due to Industrialisation and Trade Policies
With the support of new markets, financial innovation, and the most favourable
financial conditions, industrialisation and changes in trade policies has changed the economy,
resulting in a new kind of corporate management within the global economy's operations.
With the aid of a changing environment and successful growth inside the organisation, a
significant shift in the global economy may be achieved. Major sources and employed for
enhancing efficiency and making cheap working capital for improving profit figures in the
measure operations in respective business firm. With the aid of industrialisation, it has been
seen that the majority of companies and the global economy are changing as a result of lower
cost supply, a growth in the number of low-cost workers, and high-quality raw materials in
various countries. However, there are significant challenges faced in the process being these
are as follows;
 Productivity- The labour of UK is less productive as comparison to labour of another
country like USA and France. Due to this less productivity, government of respective
country have invested so much amount of training and development of labour of that
country but the results are waste. The biggest reason behind the lack of productivity
of UK labour is that they are not technically sharp in order to work in big industry.
Hence the government need to change their training strategy or to opt for new labour
in case new training strategy won’t be fruitful.
 Skills- The human resource of UK country is not skilful in order to work in big
industries. According to engineering UK, 1.8 million engineer and technicians will be
require by 2025. The government focus on urgent requirement of skilful human

resources. The government of UK are ready to investment more than 1 billion pound
in order to invest in human resources to make them industry ready. Hence, the
government has launched so many courses in order to polish skills of human resource
of respective country.
 Brexit policy- It is another hurdle takes place in industrialisation policy of UK. It is a
deal which is getting UK out of British union. This is another and most important
reason why industrialisation is fail in UK. Hence, government have to deal with
Brexit policy also in order to develop industrialisation in country.
 Labour laws- There are certain labour laws which the labour of UK don’t want to
accept or don’t want to work according to them. In order to deal with the labour
government either have to modify the laws or make new fresh laws in order to get
work done by labour.
 Health of economy- number of jobs availability, infrastructural development of
country are the major example for which the health of economy examine. If the
economy of country get down, government will take less taxes from taxpayers by
which they will spend less amount on education and financial development of people
of country. More than 50% of trade of UK is based with outer countries like Japan
which determine the financial health of country. Hence UK has to follow the trade
policies of Japan in order to successful happening of trade among countries which
will eventually boost the economy financially and lead to more profitable situation for
country.
 Agriculture- It is primary source of income for the people those who leave in village
side of country. More than 50% population of UK is depend upon agriculture for
survival of their livelihood. UK has to import so many vegetables from other
countries by which respective country have to pay different import charges to
different countries. Hence in order to deal with UK has to pay import charges to all
those countries in order to successfully happening of business otherwise village
population will die due to starvation.
Conclusion
From the evaluation of above report it is derived that trade finance and investment
plays a very important role to measure the financial performance of country. There are certain
trade finance instrument use to measure the financial performance of country are- stock,
derivatives, money market and many more. Investment refers to expenditure done by

company in order to acquire asset for generating long-term wealth for future. Investment is
also helpful to boost the financial performance of country as it provide employment to lot of
unemployed youth who are skilful but still sitting idle at home. Hence, by taking into
consideration all these factors country’s economy will definitely be rise and will give
tremendous employment opportunities to people of that country.
Recommendations
From the analysis of the aforementioned study, it is clear that trade finance and
investment play a critical role in determining a country's financial performance. Stocks,
derivatives, money markets, and other trade finance instruments are used to assess a country's
financial performance. However, there are various recommendations drawn for the chosen
firm to engage their business activities in more effective manner. These are as follows;
 Market changes: As more individuals move digital as a result of the Covid-19
problem, it is urged that businesses managers to guarantee that employees have the
skills they need to execute their jobs. In the case of international businesses, sufficient
training in terms of numeracy, literacy, and problem-solving must be provided to each
employee so that they have a technologically prepared workforce. It will aid in the
more complex execution of functions, as well as effective adaptability to digital
change.
 Digital transformation: It is advised that businesses in respective business industry
employ digital transformation to adapt their organisations and marketplaces to meet
their particular demands. There may be adequate personalization based on the
preferences of the consumer, which can aid in the digital transformation process.
Data-driven transformation may be used to achieve effective management of client
preferences. Because of the fast-changing external environment, it may also be highly
useful in achieving a larger competitive advantage in the context of hospitality
organisations.
 Innovation: It is advised that digital transformation be driven by innovation. In the
context of provided business, digital transformation may be enabled, and more
investment in research and development can be employed to support a better market
response.