Capital flows measure the net amount of a currency that is being purchased or sold due to capital investments. It can be negative or positive.

Foreign exchange market - Wikipedia

Since the inception of World Trade Organization WTO and Internet, direct foreign capital investment has become just a breeze through. When global corporations such as Google makes acquisitions for Indian start up IT firm, it requires Google to sell the U.

Next Google needs to buy the local Indian currency to pay for the acquisitions cost, which leads to movements in the forex market.

Learn About Forex Trading and Currency Trading

This is particularly true when such acquisitions involve more cash than stock. Portfolio flows refer to capital flows in equity market such as stocks and fixed income market such as bonds.

One of the greatest blessings of internet that I consider in my personal life is that it affords faster communication and transportation of money. When I came to the U. Accordingly, a rallying equity market will entice global investors just as a skinny blue eyes blonde will attract all level of reproductive male in a busy bazaar.

If the equity markets is in good health, investment dollar will flow to the country whereas sick economy will lead to poor performance in the equity market. This will ultimately fuel domestic investors as well as foreign investors to seek investment opportunities elsewhere abroad. Fixed income markets refers to bond markets, specifically, international government bonds as these securities become more appealing to investors in time of global uncertainties due to inherent safety they offer.

Accordingly investors both domestic and foreign, who are true specimen of greed and fear, will naturally gravitate towards securities that will offer the highest return on their investment besides security.

For foreign investors, this process requires selling their local currency and purchasing the country's currency that they want to invest in. This process creates demand for the currency of the country where investors want to make their capital investment. Do you also see which way of demand and supply is weighing high and which way is weighing less? It's absolutely imperative that forex traders understand this concept of capital flows very well to understand supply and demand for a specific currency.

Home Contact Us Privacy Policy Risk Warning Disclaimer Site Map. Capital Flows -How To Measure Currency Supply And Demand? Physical Flows Physical flows refers to actual cash flow that is involved during this process of transaction.

Portfolio Flows Portfolio flows refer to capital flows in equity market such as stocks and fixed income market such as bonds. Portfolio Flows Equity Markets One of the greatest blessings of internet that I consider in my personal life is that it affords faster communication and transportation of money.

This is so true when it comes to investment.

This leads to strong correlation between a country's equity markets and its currency. Fixed Income Markets Fixed income markets refers to bond markets, specifically, international government bonds as these securities become more appealing to investors in time of global uncertainties due to inherent safety they offer.

Capital Flows

So do you see how demand and supply equilibrium gets interrupted by now? Have your say about what you just read!

Leave me a comment in the box below. Return to Capital Flows Forex Fundamentals Home. Welcome Home Forex Blog Forex Forex Basics Forex Trading Features Forex Trading Forex Trading Levels Forex Trading Fulltime Money Management Money Management Margin Margin Trading Leverage Leverage Trading Entry Size Buffer Building Equity Building Becoming Fulltime Trader Fundamental Forex Fundamentals BoP Theory PP Parity Theory Interest Rate Parity Monetary Model Interest Rate Differential Asset Market Model Currency Substitution Model Technical Technical Analysis Dow Theory Candlestick Chart Candlestick Analysis Support and Resistance Trend Lines Indicator Moving Average Bollinger Bands Adaptive Moving Average Currency Correlation Currency Correlation Eur-Usd Correlation Dollar, SP and Dow Correlation Dollar-Bonds Correlation Gold-Usd Correlation Dollar-Oil Correlation Forex Robots Forex Trading Robots Brokers Forex Broker News Trading News Trading Forex Store Forex Books Forex Tools Currency Converter Forex Directory Forex Directory.