Essay About Foreign Exchange And Transnational Capital Flows

Should Rigorous Controls Be Imposed on Transnational Capital Flows?
Should Rigorous Controls Be Imposed on Transnational Capital Flows?
I. INTRODUCTION
Transnational capital flow is a term coined to describe the movement of capital across national
boundaries. International financial and capital flows have experienced a phenomenal upsurge during the
late twentieth century. According to the latest estimates, foreign exchange to the tune of one to two
trillion US dollars is transacted internationally every day. Significantly, exchanges in trade and services
constitute only a tiny fraction of these transactions, while the majority is composed of movement of shortterm
capital and foreign investment. While the benefits of such flows are manifold, there are negative
side-effects too. Unfettered movement of capital in developing countries has triggered off several
economic crises in recent history and there is a compelling case for tempering such flows through
imposition of adequate controls.
I.i Types of Global Capital Flows
Transnational capital flows can be broadly classified into the following categories:
1) Foreign Direct Investment (FDI): Acquisition of companies, physical investment in plants and
equipment.
2) Foreign Portfolio Investment: Investments in capital markets.
3) Loans and credit issued