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International Capital Flows

Definition

International capital flows refer to movements of financial assets (such as stocks, bonds, and currencies) between countries. It involves investments made by individuals, companies, and governments across national borders.

Analogy

Think of international capital flows as a global game of hot potato with money. Investors from different countries pass around their financial assets seeking higher returns or safer havens based on economic conditions and opportunities worldwide.

Related terms

Foreign Direct Investment (FDI): FDI refers to long-term investments made by individuals or companies from one country into businesses located in another country.

Portfolio Investment: Portfolio investment involves buying stocks, bonds, or other financial assets issued by foreign entities with an expectation of earning a return.

Current Account Balance: The current account balance measures a country's net trade in goods and services along with net income from abroad. It is closely related to international capital flows as it reflects how much a country borrows or lends internationally.