Financial Market sample Assignment
Financial Market plays a vital role to boost up money in an economy. It accelerates both the domestic and international market. Modern arena doesn't make any boundary for investors to invest their idle money in their desired niche. Today's globalization pushes investor to utilize their money in the different financial market.
A simple explanation of Financial Market is that a not defined market where investors invest their money and borrower take advantage by borrowing that money at a prevailing rate. In a simple word Financial market means a market where buyers and sellers traded securities for a short or long period of time. There have numbers of the way of raising capital through Financial Market obliging common rules and regulations.
Financial Market creates value when any investor put his idle money in the market by purchasing stock or securities. Because once he provides his idle fund to any particular party, the utilize the best use of that money. Party may either utilize its investor money by inheriting in the more profitable niche or lend to other party to utilize money. Such a transaction of money accelerates economic growth. And accumulated transaction of a number of financial firms push economic growth with in domestic economy and when investors get themselves engaged from internationally, at that time it also brings significant impact on international trade
3. Background of the Financial Market
Basically, there are 3 types of market. These are 1. Factor market 2. Product market 3 Financial Market. The financial market plays a huge role in financing related activities. It deals with finance-related activities. A financial Market can be defined as a market where securities are traded between buyers and seller. It a mechanism of utilizing Ideal money for the investor. In each Country, financial Market plays a hugely significant role to control its economic growth. It helps the corporation to raise fund, which essentially helps corporation invest in a different set of outlets. Corporation get a return from that investment and thus its stimulated activities for a county. On the other hand, Investor who has a big amount of idle money put their money by buying a financial asset in financial Market. They receive interest on buying the financial asset. So, from their background, they also give the opportunity to market to have proper utilization of their money.
Financial Market is basically standing on two markets. 1 Money Market 2 Capital Market.
Money Market: Money Market refers a market where short-term securities which maturity is less than one year are traded. Money Market securities are considered easily convertible when investors need to liquid their asset. Maturity term of short-term security never exceeds 1 year. The interest rate that is given on investors is low. Some types of the money market.
- Treasury Bill
- Commercial Paper
- Repurchase Agreement
- Treasury Note. etc.
Capital Market: A Market where long-term securities are traded between buyer and seller is called capital market. Capital Market is not used to converting securities within a short period of time. It provides a higher interest rate to an investor. Its securities maturity is more than one year. Some asset of the capital market is given below.
- Treasury bond
- Corporate bond
- Share etc.
Forms of Financial Market:
- Organized Market: A market where listed firms traded their securities is call organized market.
- Over the counter Market (OTC): a market where non-listed firm traded their securities is called OTC market.
- Third Market: A market when a listed firm sells their security in the OTC market is call the third
- Fourth Market: Where private placement of security happens between two parties and trade their property is called the fourth
4. Capital Allocation within the Domestic Market
Domestic economy remains in struck in expanding toward growth until it is backed by proper capital allocation through players or parties. Parties are too much important in a domestic market for capital allocation. If any system or part of role-playing parties don't be active to its role, it raises the problem to the function of capital allocation. The government, Central Bank, Monetary policy, commercial Bank, Financial Institutions etc. are a different party within a domestic party. Without proper function of these part, the Domestic economy can't move smoothly. A brief description of such domestic Parties is given below.
- Government: Government plays the role of the Supreme policy maker. It regulates the financial market through its central bank. The government takes fiscal policy and monetary policy under the supervision of Central Bank.
- Role of Central Bank: Central Bank is head of all banks of a county. It regulates the entire banking system of a particular nation through different kinds of policy. When it acknowledges countries, the economy is in severe condition, it takes corrective measures to fix the concerning issues. Central Banks represents the government. it is called the father of all banks within a county.
Central Bank is such a bank which monitors all activities of existing banks of a particular bank, issues currency, take monetary policy, punish defaulter banks for illegal activities. Bank of England is an example of Central Bank. And most importantly, a county has an only a single central bank. A set of issues are given which describes the entire concept of the Central Bank of a particular nation:
- A central bank monitors entire banking system of a country
- It provides currency to the economy
- Central Bank takes corrective measures for keeping its national economy sound good
- The central bank is a policy It institutes a monetary policy to control the economy
- a central bank supply money to the commercial bank
- Central Bank helps commercial bank when the commercial bank is in distress
Monetary Policy: A policy initiative by the central bank to monitor economic circumstance of a particular nation. Firsts Central bank seeks ins and outs of its economy. It determines price level, compares current price level with the previous one, its analysis data regarding interest rate and finally come up with a solid policy to fix any fluctuation. The higher effective monetary policy, the better economy controlled by the country. There is some basic fact that is used under the monetary policy to monitor the economy by the central bank
- Interest Rate: by Adjusting interest rate, Central bank monitor intense rise of inflation. When the economy is surrounded by inflation central bank adjust its policy to protect higher interest rates.
- Reserving amount: Another way of controlling economy of a particular nation is to change reserving amount.
Central bank goes for changing its monetary policy after analyzing the following fact
Inflation rate: It is said when the value of money becomes depreciated due to the rise of the price level. The Higher inflation rate is one kind of burden for any country. Because, it leads to a rising price level, Poor and middle-class family face the intense problem of purchasing something. Even economy tries to go beyond controlled
Role of capital allocation ensures by the central bank in the domestic market are given below:
- Its initiatives policy of supplying currency to its economy considering the fact of the urgency of money. When Central bank acknowledges its nation needs an inflow of currency, it goes up for introducing the model of bringing of currency.
- the way a central bank takes policy, it helps the domestic market to create empowerment for both men and women. Which essentially accelerate allocation of currency in the domestic market
- Other financial parties which ensure capital allocation within the domestic market: As earlier, it is said, apart from the central bank, government, there have a commercial bank, financial institution etc which has the significant role of capital allocation in the domestic market. A brief description of the capital allocation of this institution is given below.
- saving: When an individual saves their money in a financial institution, at that time accumulated saving of many individuals gets a bigger amount. Which is Further given as loan to others party or invest saving in a profitable niche?At that time lend taker can utilize these monies and on the other hand, when money is invested in a profitable niche, it provides the highest utilization of money. this saving service provided by bank gives capital allocation in the domestic
- Stock Market: the stock market is a major way of capital allocation in a domestic market. This market has a huge asset to allocate capital in the market. As an example we can discuss bond
- Bond: bond is long-term unsecured instrument which is issued by the government, different company, etc. these parties issued such instrument to the individual. in return company get huge fund from individual and these institutions go for investing such money. this is another way of capital allocation.
A simple line can explain these in a better way. That is London Stock exchange is a key player of allocating fund in the domestic market and main market of UK to allocate capital. UK stock exchange works in two ways. First one is purchase's broker and the second one is seller's broker. with these functions, investor traded securities.
5. International Economy and Capital Allocations
Capital allocation is not confined in the domestic market but also has spread in the international market. A basic fact institution functions such activities which impact internationally. Some factors are given below which accelerates capital allocation within the international market.
- Global Stock Exchange: Global Stock Exchange is a market where a company from a different country engaged its trading securities. Global stock exchange plays a huge vital role to accumulate currency from a number of multinational company and it utilizes accumulated currency in its best way. For example, Bulldog acts as, a global stock exchange for international companies who wish to trade securities internationally. The major contribution of the global stock exchange is 'collection of huge currency and seek investment in such a profitable niche which generate huge employment.
- Foreign exchange Market: Like the global stock exchange, Foreign exchange market also plays a vital role in capital allocation in the international Foreign exchange market basically works with people. Where people buy and sell or speculate different currency. Like Forex Market. Where each year numbers of trillion currency are traded. people buy currency and sell such currency when it gets a higher price.
- Derivative Market: Derivative means deriving value from an underlying Derivative market contributes to capital allocation in both the domestic and international market. Where investor get the option of purchasing ABS (asset-backed securities) and can derive value from purchasing such ABS (asset-backed securities). Some example of Asset-backed securities is a. loan b. interest etc. are an example of ABS.
- Non-Banking financial Institution: Non-Banking financial Institution also contributes for allocating capital in both domestic and international market which essentially ensure accelerated economic growth. Non-Banking Financial Institutions are not like a bank. It does not obey banking activities like collecting deposits or etc. but it lends money to the borrower. Some example of Non-Banking financial Institutions are leasing company, financing company, insurance company, Pensions fund etc. Prime contribution of Non-Banking financial Institution is that it makes a flexible way of providing a lease, or lending currency to youth. Even these Non-Banking financial Institution helps to raise infant organization of market.
- World Trade Organization: Word trade organization has established in 9995 with a motive of ensuring fairness in trade globally. It connects many countries of the word in the same It makes globalization path easier for the 21st century. Have a look at how World trade organization has set a platform of allocating capital and ensure better use of global advantage through fair trade within its member state. a. WTO set guidelines, rules, and regulation to execute fairness b. WTO monitors business trade agreement between parties and deals with any issues regarding trade
- Regional Trade Organization. While WTO works globally, regional trade organization focus on its regional trade. Its parameter is narrow than WTC. It forms with a set of the nation within a particular region and works for the betterment of trade among members state. A significant contribution of Regional Trade Organization is that it provides tax trade among its members' state. And the contribution of Regional Trade Organization toward the allocation of capital in the international Market is that it moves both factors of production, labor, capital which ensure a gigantic acceleration all factors associated with boosting the economy. Some active Regional Trade Organizations are given below
- European Union: Which essentially works for 28 European countries. and one of the most powerful regional trade organization. It gives its member states tax-free
- NAFTA: NAFTA was basically known as North Atlantic Free Trade Agreement. Where only 3 countries deal with trade-related Countries are USA, Canada, Mexico. It has formed in 1994. It maintains a set of guidelines so that member states don't get engaged in trouble within their region due to price variation of the country.
B. Using an emerging economy of your choice critically evaluate what are key challenges that country faces due to industrialization and trade policy
Introduction to BRICS
BRICS is the collaboration of five emerging countries named Brazil, Russia, India, China, and South Africa. It was established in 2006 and works for having regional trade advantage among its member state. The prime objective of BRICS is to increase trade affair among its 5-member countries without hassle. BRICS Plays the role of developing bilateral trade and solid connection without getting any hindrance. It ensures fairness in its member states.
6. Emerging Economy - Brazil
With a solid economic performance in the last decade, Brazil proved ass one of the major emerging economies I'm the world. The country has upward slop of higher income from lower. Basically, three main elements push Brazil to have such upward slop of higher income.
- The country successfully engaged themselves with the global economy by including themselves with Europe, USA. Which increases their trade benefits more?
- It has developed a solid public finance. Which essentially indicates of forming its capital structure in such a way which essentially reduce the cost of capital and maximize the higher value.
- Privatization on some filed which significantly support to rising economic growth is also liable to make Brazil as emerging economy in the world
It is expected that the size of the Brazilian economy will be larger than Italy within 2050. Brazil was in the positioning of holding 6.1% GDP growth over the decade and have reached $10,787.61 per capita income in 2016 (Beck and leaven 2017). But this is not the end of the story, despite having such sound growth in the economy, Brazil still needs to come up with some eye-catching policy which helps Brazil to reach a developed country.
Despite the tremendous economic growth, the country requires to reform its economic institution to encourage investment and innovation so that Brazil can continue its growth and will reach to the highly developed country.
- Services: Service sectors are topmost contributor among another sector to accelerate GDP in Brazil. The Brazilian service sector contributes a total of 64.3% GDP toward its economy. The nation's services sector basically produced on IT, transportation, hospitality, finance, telecommunications, transport, personal services, business services etc. which made Brazil have the highest contribution from this sector. Among these category transportation service considered as the highest contributor that contributes almost 33% where travel and hospitality services contribute 20.6%, finance and insurance contribute 6.3%, IT and telecommunications contribute 8.3% and rest of business services contributes 23.9% in the economy of Brazil (Hale, 2017)
- Production/ manufacturing: Production and Manufacturing sector is considered as second-best sector GDP contributor in the Brazilian Manufacturing sector almost contributes 28% GDP in the Brazilian Economy. Major factors which are running under manufacturing sector of Brazil is electronics production which contributes 31%, 22% comes from machinery production, fabrics, appeal, organic chemicals, plastics, and technical equipment contributes 30.7% and 20.8% contribution comes from other manufacturing sources (Belvedere, 2018). This rapid growth forms due to the inclusion of industrialization. Industrialization pushes to increase production capacity, employment since last ten years.
- Agriculture A total of 6.8% GDP comes from agriculture sector in Brazil economy. The agriculture sectors contributed approximately 21% since 1990-2010. Though heavy rapid industrialization pushes agriculture contribution little bit back since last 10 year still it accelerates economic A total of 12.1% are used by Commercial crops like sugarcane, corn, and cocoa. And rest of the lands of Brazil are cultivated for producing mixed agriculture, tree crops, forests etc.
- International Trade: Brazil has engaged themselves in international trade very rapidly and have a significant improvement from the international A total export of £55 billion takes in 2007 in Brazil. But most importantly export has been increased to £152.5 billion in 2017. The products which Brazil export most in the international market are automotive, iron, steel, textiles, pharmaceuticals, ships, military equipment etc. The main stakeholder of Brazilian product is UK, Russia, USA, Spain, UAE, and other countries.
7. The Key Challenge That Brazil face due to industrialization and trade policy
With the emerging economy, Brazil faces a set of serious challenges. As rapid industrial growth takes in the economy, as a result, it has a negative impact on other sectors. Which at end of the day push Brazil in a challenge to solve. Few of them are discussed below.
- Labor productivity: It is true the Brazilian industrial growth gave a significant development to the economy but the hardest status quo is that Brazil cannot improve a sufficient number of skilled labors. About 32.2 Million people have engaged themselves as labor in Brazilian economy in 2017 where only 53.6 have participated as a labor Approximately 53.1% labor forces joined to the service sector, where 20.3% to the agricultural sector and only 18.8% of labor forces joined the industrial sector. Such status quo gave a clear indication about the shortage of skills in the industrial sector of the country which brought result thousands of skills are required to outsource by the country. As a conclusion, the country is now heavily depending on outsourcing skill. Which turn into a big challenge to sustain the Brazilian economy.
- Environmental concerns: Today's world is much more concern about the environment. And All over the world, each county is fighting against climate change to make the environment And as a reason, being an Industrialized based developed country, Brazil is in a challenging situation because Brazil is ranked as the 18th nation of producing carbon emission country and country produces almost 4.10 metric tons carbon in 2015. This is all about the effect of the industry-based nation. Brazil has included themselves in the Paris Agreement held in 2015 to reduce carbon emission in the country. And now the main challenge is to bring a balance between reducing carbon emissions and keep constant grow up the economy.
- Tax problems: Brazil faces a higher tax burden in its market. which brought the negative result of production for the Brazilian Such high burden tax policy makes Brazilian investing or producing activity more difficult and unpredictable. Right now, the Brazilian Government takes 33% tax from the businesses. Due to such tax burden, the county is embracing two issues.
- The country is losing domestic investment. As investors don't interest to pay such high tax rate and these investors are switching Brazilian Market.
- The multinational company shows disinterested in investing in Brazil due to higher interest.
The assignment has shown so far how capital allocation works in both in the domestic and international market. Along with this, the study shows what challenges may come to an emerging economy due to heavy industrialization in its nation. How such challenge can affect the global market as well as.