BUSINESS ADMINISTRATION

National College of Business and Arts

Cor. Regalado St. Commonwealth Ave., Fairview, Quezon City

INTERNATIONAL BUSINESS AND TRADE

PART 3: PRE-FINAL PERIOD

COURSE TOPIC

Business Opportunities in the Financial Market

● Introduction for business opportunities in the financial market

● Characterization of emerging economies specifics
● Comparative advantages in foreign, direct, and portfolio investments
● Risks of business opportunities in the financial market

Foreign Direct Investment

● Introduction of foreign direct investment

● Formulation of possible investment risk
● Mechanisms for its minimization

Foreign Trade Potential of the Emerging Economies

● Introduction of foreign trade potential of the emerging economies

● Business Climate between the region of Asia, Europe, Africa and Latin America

Growing Potential of the Market of Services

● Introduction of the growing potential of the market of services

● Assessment of the interaction of the emerging economies with the world market
● Development perspectives in the era of globalization
● Determination of the current trends
 BUSINESS ADMINISTRATION
National College of Business and Arts
Cor. Regalado St. Commonwealth Ave., Fairview, Quezon City

What is the Financial Market?

Financial Markets are platforms where buyers and sellers engage in the trade of financial such
as stocks, bonds, currencies and derivatives. These market are crucial for the efficient allocation
of resources, providing capital to business and government, and offering investment
opportunities to individuals and institutions.

Types of Financial Market

● Stocks Market : The stock market is where shares of publicly traded companies are
bought, sold, and issued. It is a collection of several exchanges where companies
choose to list their stocks.
● Bonds Market : The bond market refers broadly to the marketplace where investors buy
and sell debt securities. Both governments and companies issue debt for a variety of
reasons such as reducing overall debt, funding growth projects, or simply helping
maintain day-to-day operations.
● Foreign Exchange Market : Commonly known as the forex market or FX market. The
foreign exchange market is the global market for exchanging currencies of different
countries.
● Derivatives Market : Is a financial market where instrument like futures, option and
swaps are traded. These instruments derive their value from an underlying asset, such
as stocks, bonds, communities or interest rates.

Business opportunities in Financial Market

1. Peer-to-peer (P2P) lending : P2P lending platforms connect borrowers directly with
lenders, bypassing traditional financial institutions. This can offer lower interest rates for
borrowers and higher returns for lenders.
2. Robo-advisors : Robo-advisors use algorithms and data analysis to provide automated,
low-cost investment advice and portfolio management. They are designed to make
investing accessible and affordable.
3. InsurTech : Insurtech refers to the use of technology to innovate and improve the
insurance industry. This includes everything from digital insurance platforms to Al-driven
claims processing.
4. Crowdfunding platforms : Allow individuals and businesses to raise funds from a large
number of people, typically via the internet. This can be used for a variety of purposes,
including launching new products or supporting creative projects.
5. Fintech solution : Fintech solutions encompass a wide range of technological
innovations in financial services, including mobile payments, online banking, and
blockchain technology.
 BUSINESS ADMINISTRATION
National College of Business and Arts
Cor. Regalado St. Commonwealth Ave., Fairview, Quezon City

6. Cryptocurrency and digital assets : Cryptocurrencies are digital or virtual currencies

that use cryptography for security. Digital assets also include tokens and other
blockchain-based assets.
7. Commodities : Commodities are raw materials or primary agricultural products that can
be bought and sold, such as gold, oil, and wheat. Investing in commodities can provide
diversification and hedge against inflation.

Conclusion:
Financial markets offer numerous opportunities for businesses to grow and succeed. By
accessing capital through investments, businesses can expand operations, innovate, and create
new products. They can also manage risks through insurance and secure funding for large
projects with loans. Overall, financial markets provide the resources and support businesses
need to thrive and contribute to economic growth.

What Is an Emerging Market Economy?

Emerging markets refers to economic that are process of repeated growth and industrialization.
This market often exhibit higher level of volatility compare to develop economies but also
present significant opportunities for growth at their core these markets are in a transition phase
moving from low income to middle income status and are becoming more influential in the
global economic landscape.

Why Are Emerging Economies Important?

Emerging economies are becoming crucial players in the global economy. They contribute to
global trade, manufacturing, and investment. Additionally, they offer new markets and
opportunities for international businesses looking to expand beyond traditional developed
markets.

Characterization of Emerging Economies in International Business and Trade

1. High Growth Potential : Emerging economies typically exhibit strong GDP growth,
fueled by rapid industrial expansion, infrastructure development, and a large, young
population that is increasingly moving toward urban areas. This growth attracts foreign
direct investment (FDI) as global companies seek to tap into new consumer markets.
2. Rising Middle Class and Consumer Demand : A growing middle class in these
economies creates a rising demand for goods and services, especially in sectors like
technology, retail, and healthcare. This demand offers new market opportunities for
foreign businesses looking to expand their customer base.
3. Competitive Labor Costs : Emerging economies generally have a large workforce with
lower labor costs, making them attractive for manufacturing and assembly operations.
 BUSINESS ADMINISTRATION
National College of Business and Arts
Cor. Regalado St. Commonwealth Ave., Fairview, Quezon City

This cost advantage allows companies to reduce production expenses and increase
profit margins, fostering a shift of manufacturing operations to these regions.
4. Trade Liberalization and Economic Reforms : Many emerging economies have
embraced trade liberalization policies, reducing tariffs, and removing trade barriers.
These reforms create a more favorable environment for international trade, facilitating
export-led growth and encouraging foreign investments.
5. Infrastructure Development : To support economic growth, emerging economies invest
significantly in infrastructure such as transportation, energy, and technology. Improved
infrastructure attracts multinational companies by making it easier to establish and scale
operations in these markets.
6. Political and Economic Risks : While emerging economies present growth
opportunities, they also pose unique risks. Political instability, regulatory changes, and
currency fluctuations can affect business operations and profitability, requiring
companies to adopt risk management strategies.
7. Role in Global Supply Chains : Emerging economies are increasingly integrated into
global supply chains. Their manufacturing and export capacity make them critical links in
production and distribution networks for goods traded worldwide. This integration also
makes them vulnerable to disruptions, such as those caused by global events or trade
disputes.

Comparative advantages in foreign trade, direct, and portfolio investments

Comparative advantage
Is a key concept in International trade and Investment. It refers to a country’s ability to
produce a particular good or service at a lower opportunity cost than other countries. This
principle encourages countries to specialize in the production of goods and services where they
have a comparative advantage, leading to more efficient global trade.

Comparative Advantage in Foreign Trade

In foreign trade, Comparative advantage allows countries to benefit from specialization
and trade benefits

Specialization: Countries focus on producing goods and services where they have a
comparative advantage, meaning they can produce at a lower opportunity cost compared to
others.

Trade Benefits: By specializing and trading, countries can enjoy a greater variety of goods and
services, often at lower prices, boosting overall economic welfare.

Foreign Direct investment (FDI) involves a company or individual from one country making an
investment into business interests located in another country. This can include setting up new
 BUSINESS ADMINISTRATION
National College of Business and Arts
Cor. Regalado St. Commonwealth Ave., Fairview, Quezon City

operations or acquiring existing businesses. FDI is often driven by comparative advantages

such as lower labor costs, access to natural resources, or favorable regulatory environments.

FDI can bring several benefits to the host country, including

● Job Creation
● Technological transfer
● Economic Growth

Portfolio Investments involve investing in financial assets such as stocks and bonds in a
foreign country. Unlike FDI, portfolio investments do not involve control over the business
operations. These investments are typically more liquid and can be easily bought and sold in
financial markets.

Portfolio Investments are influenced by factors such as:

● Market Conditions
● Economic Stability
● Interest Rates

Risks of Business Opportunities in the Financial Market

The risks of business opportunities in the financial market refers to the potential for losses or
adverse outcomes that arise when engaging in investment, trading, or business activities within
the financial markets. These risks stem from factors that can negatively affect the value of
assets, disrupt market stability, or hinder the success of financial ventures. They arise due to the
inherent uncertainties, volatility, and complex dynamics that characterize financial markets.

Types of Risks in Business Opportunities in Financial Market

● Market risk
● Credit risk
● Currency exchange risk
● Operational risk
● Systemic risk
● Regulatory and legal risk
● Liquidity risk
● Reputational risk
● Political and economic risk

Market risk. This is the potential for losses due to changes in market prices. These fluctuations
can result from various factors, such as changes in interest rates, foreign exchange rates, or
commodity prices
 BUSINESS ADMINISTRATION
National College of Business and Arts
Cor. Regalado St. Commonwealth Ave., Fairview, Quezon City

Credit risk. The risk that a borrower or counterparty may default on their financial obligation.
This type of risk is especially relevant for loans, bonds, and other credit-based investments. It
can lead to significant losses if debts remain unpaid.
Currency exchange risk. For businesses engaged in international markets, fluctuations in
currency exchange rates can reduce the value of foreign earnings and raise costs, affecting
overall profitability.
Operational risk. Risks stemming from internal failures, such as system breakdowns, human
errors, or fraud. These risks are not related to market movements but can have financial
impacts, particularly in high-frequency trading or complex financial operations.
Systemic risk. The risk that an event affecting one part of the financial system could impact the
entire market. This is especially prominent in tightly interconnected markets, where the failure of
one institution can cascade and trigger widespread financial disruptions.
Regulatory and legal risk. Financial markets are highly regulated. Compliance costs can be
high, and any legal violations may result in fines, sanctions, or reputational damage. Changes in
regulations also pose a risk if they affect market operations or introduce new tax implications.
Liquidity risk. The difficulty of converting assets into cash without a significant loss in value. It
occurs when assets are not easily tradable or markets are under stress, making it challenging to
sell investments quickly at a fair price.
Reputational risk. Damage to a company’s reputation can impact its market position, client
trust, and ultimately its financial performance. This type of risk is particularly relevant in markets
where brand and public perception are critical.
Political and Economic risk. Political instability, changes in government policies, or economic
downturns can impact markets significantly. Geopolitical events, tariffs, sanctions, or economic
recessions can introduce substantial risks in both domestic and international markets.