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Chapter 21, Part V. What Could Shape the Market? Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 22, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    In fact, capital flow is the amount of money that is transferred in or out of some particular country because of investors are buying or selling something. As a result, traders watch over an indicator that is called “Capital flow balance” that could be positive or negative. A particular country will have a positive cash flow balance, if investments coming into the country are greater than outflow from the country. In general this means that investors find it attractive to put their money in some assets of that country, including the currency of that country. Otherwise is true also – when outflow exceeds inflow and the balance turns negative, it means that investors close their positions and leave this country to search for something more attractive.

    So as we’ve said before, to invest in domestic assets, investors need domestic money first. Hence, as they’ve decided to come in and invest in that country, they need to purchase (or borrow) domestic currency first. When more investors are stepping in, the demand for domestic currency significantly increases and its rate starts to grow. And vice versa – when investors start to abandon this country, they start to slough domestic currency, supply increases and it start to fall compared to other currencies.

    What kind of economy do most investor like? - Those that give a high interest rate on their investment and stability. So, if economy shows solid growth, high interest rates and safety (mature economy), this country usually has solid positive capital flows balance. This is a typical situation for US in period of high interest rates and solid growth pace of the economy.
     
    #1 Sive Morten, Dec 22, 2013
    Lasted edited by : Sep 25, 2016
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