Capital And Trade Flows
When we speak of fluctuations in the currency market, the two best indicators that help determine in advance the price movements are the capital and trade flows. This is because these directed in particular the supply of demand for some currencies, which in turn determine the price. The flow of capital is a measure based on the flow of money in and out of an economy based on investment. This would include the purchase of stocks and bonds, and the cost involved in mergers and acquisitions. This applies to the recording of money spent on capital goods. Modern technology has made globalization a reality, not only in terms of movements of people, but in terms of a globalized economy.
It’s easier than ever for businesses and individuals to move money around the world, quickly and in large quantities. So, no matter where an investor is based, may seek investment opportunities in other countries. of securities of a foreign country is now as easy as invest in the same national stock exchange. The way in which currency prices are determined depends on the meeting of demand and supply, ie the price that both parties are willing to pay, and sell. So the demand for a currency is correlated to the amount of investment that runs between two economies.
Similarly, the flow of trade, as its name implies, measures the movement of money in and out of an economy based on the expenditure and the sale of goods and services such as professional services and consumer goods. Everything from toys to vegetables are traded in ever greater quantities worldwide, and the movement of such goods involves the payment by them in the form of (foreign exchange). Again, the basic economics of supply and demand determines the relative prices of currencies when associated with trade flows. The demand for a currency export, increase demand and push up its value against other currencies.