Philippine E-Journals

Risk, Return, And International Capital Movements: A Survey

Ma. Agnes R. Quisumbing

Discipline: Finance

 

Abstract:

The analysis of items in the capital account entails many complications not encountered in the study of the balance of trade. Leamer and Stern (1972) say that the difficulty arises from the fact that capital movement is a monetary, not a real, phenomenon. For example, one can no longer assume unchanging tastes, which would assure the relative stability of import and export demand as a function of price. Certain capital movements will be influenced significantly by changes in expectations regarding rates of return, thereby suspending the reliance on observed returns in present and previous periods. Non-price variables such as credit rationing, capital controls and government incentives will have a great impact on capital account transactions as compared with the current account. In addition, institutional complexities and special characteristics of the foreign exchange and credit markets may mean that not all investors or potential transactors can undertake a given activity to an equal degree.