Capital flows refer to the movement of money for the purpose of investment, trade, or business operations. Inside of a firm, these include the flow of funds in the form of investment capital, capital spending on operations, and research and development (R&D).
What is an example of capital flow?
As a simplified example, if the Federal Reserve Board raised its target interest rate relative to foreign interest rates, capital would flow into the United States.
What are some different types of capital flows?
There are three major types of international capital flows: foreign direct investment (FDI), foreign portfolio investment (FPI), and debt.
What is capital flow for country?
Capital flows can help countries to grow and to share risks. But economies with large external debts can be vulnerable to financial crises and deep recessions when capital flows out.