short-run capital movements

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Movements of capital between countries which can be quickly reversed. This usually means holding liquid assets, such as bank deposits or short-dated financial assets such as bills. It is possible to move funds short-term and buy shares or longer-dated bonds, but this adds to the risks. Short-run capital movements may be caused by differences in interest rates, where investors shift funds to countries with higher interest rates; or by expectations of exchange rate changes, where speculators shift funds out of currencies they expect to depreciate into currencies they expect to appreciate. Short-run capital movements may also be provoked by fears of persecution or breakdown of public order, or be part of the processes of money laundering. It is believed that large-scale short-run capital movements contribute to the instability of exchange rates when exchange rates are flexible.

Subjects: Economics.

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