International Trade Finance and Investment in the UK
International Trade Finance and Investment
International trade is the most imperative aspect that aids distinct firms to trade throughout the globe in order to develop in the market and to survive in the highly competitive market for a longer period. The prevailing study is based on financial market as well as capital allocation systems, it considers the ways by which financial market work towards capital allocation domestically as well as internationally for the purpose of trade, investment and development. It also evaluates the key challenges faced by the UK economy due to trade policies and industrialization and makes viable recommendations to address the given issues and challenges.
Table of Contents
TOC \o "1-3" \h \z \u Executive Summary PAGEREF _Toc91195752 \h 2
Introduction PAGEREF _Toc91195753 \h 4
Background of financial markets PAGEREF _Toc91195754 \h 4
Capital allocation in domestic economy PAGEREF _Toc91195755 \h 5
Capital allocation in the international markets PAGEREF _Toc91195756 \h 6
Evaluation of UK economy PAGEREF _Toc91195757 \h 7
Critical analysis of challenges that UK economy faced because of industrialization and trade policies PAGEREF _Toc91195758 \h 8
Conclusion PAGEREF _Toc91195759 \h 9
Recommendations PAGEREF _Toc91195760 \h 10
References PAGEREF _Toc91195761 \h 12
The present study is based on the crucial evaluation and analysis of how financial markets operate to allocate capital in a domestic economy as well as internationally for the purpose of trade, investment and development. The study aims to also consider UK economy and assess the core challenges it faces because of industrialisation as well as trade policies. On the basis of analysis, study also intents to make appropriate recommendations to allow international investment organization to expand their markets, have better accessibility of goods and services, gain competitive pricing and reduce payment risks.
Background of financial markets
It can be stated that financial markets make it effective yet easy for buyers as well as sellers to trade their individual financial holdings. It helps in creating securities products that offer a return for those having additional funds and make the same accessible to those who require excess money. By considering this aspect, financial market offer finance to corporations so that they can recruit, develop and invest (Plastun et al 2019). Financial market is a market wherein individual do the trading of securities as well as financial derivates for example options at lower transaction costs. On the other hand, securities comprise of stock as well as bonds. Overall, financial market is seen as those markets that deal with transparent costs and prices and have fundamental trading regulations (Brandl, 2020). There are several financial instruments and assets which can be traded in the markets such as foreign exchange, shares as well as bonds. It forms a regulated program for firms to retain immense capital amounts, also businesses are permitted to balance risks and they conduct the same with commodities, financial derivatives, foreign exchange present as well as future contracts (Prasad, 2019).
To this note, a well-operating financial market bring lenders as well as borrowers together, improvise sharing of risks leading to optimal allocation of resources, offering viable information to market participants, enabling ownership separation and facilitating management monitoring (Corbae and Levine, 2018). This therefore, improvises the investment decision quality and allows market participant’s welfare as a whole. The financial markets are often for the capitalistic purposes, one of its major functions is to consider allocation of capital (Corbae and Levine, 2018). It is to be noted that funds are attracted by financial markets from the investors and channelling of the same is done to entities that make use of it for financing their operational activities and attain growth and development from the stage of start-up or for expansion (Kostova-Pickett, 2018).
Capital allocation in domestic economy
Domestic capital market has a considerable role in mobilization of private capital for funding of domestic growth and development. Companies are provided with the capability of borrowing on a domestic basis in local currencies and this can make reduction in the currency mismatches for lender thereof decreasing systemic risks (Oprea and Stoica, 2018). Capital markets also enable domestic institutional investors like pension funds as well as insurance companies to have accessibility of long-term sources of investment other than the cash deposits as well as government debt (Bortz and Kaltenbrunner, 2018). Along with this, they improve the financial economic intermediation quality as well as resilience. In the domestic capital market, there is existence of a range of means for spurring industrial development and growth and these comprise of risk sharing and securitization, issuing of bonds and partial credit guarantees. Risk sharing allows banking authority that initiate assets for selling them into the capital markets or to obtain security against portfolio losses improvising the credit rating of assets and easing financial intermediation. Moreover, these activities also help in freeing up capital that borrowers can make use to enlarge extra credit to lenders. In addition to this, development can ease this transaction through share of risks engaged in terms of venture and promoting securitization via investment and advisory work. It is to be analysed that securitization allows business to have accessibility of financed at possibly long-term tenors and reduced rates via asset bundling with foreseeable revenue streams like mortgages.
While, bond issuance is considered as a significant market of domestic capital markets that are maturing. Although, potential investors, domestic as well as international experience considerable information asymmetries in developing markets with shallow and small capital market in exchange, institutions and members in these settings have restricted information regarding external factors like institutional investors (Vogel, 2018). In this way, solidifying domestic capital market via issuances deals with such problems by diversification of risks and making reduction in information asymmetries. Whereas the partial credit guarantees help in retaining finance that might not be otherwise be accessible, covering approx. 50% of the due bond or loan and reducing the profile of risk of the guaranteed instrument.
Capital allocation in the international markets
It can be reflected that international capital market enables resident of various countries to consider diversification of their portfolios through trade of risky assets. International market capital allocation can be done by putting foreign bonds, hedge funds, exchange rates, swaps into sale. In this capital market individuals, firms, companies as well as governmental authorities allow borrowers to lend money and make global trading operations. In addition to this, the commercial banks offer a platform for buyers as well as sellers to trade at global level and offer an assortment of financial services, receive deposits and grant loans to businesses and individual persons in accordance with the applicable policies and regulations (Maggiori, Neiman and Schreger, 2018). The international financial system supports economic growth in several ways; such as by forming money as well as money like claims, by easing specialisation and supporting trade, by aiding risk management by mobilization of resources on a global basis and thereof improvising the efficiency by which domestic challenges are satisfied. Along with this, it also allows in acquiring information for the assessment of business and allocating capital and by enlarging the opportunities options accessible to individuals, business and entrepreneurs to engage in and make contribution towards international economic growth.
The global financial system also allows international trade by manner of allocation of liquidity from areas of globe that are liquidity surplus to areas that are starved from liquidity. For instance, the increased savings rate of China contributed towards the huge liquidity stockpiles accumulation remaining over after the investment needs of country were satisfied during the