Capital Flows

The movement of money for the purpose of investment, trade or business production. Capital flows occur within corporations in the form of investment capital and capital spending on operations and research & development. On a larger scale, governments direct capital flows from tax receipts into programs and operations, and through trade with other nations and currencies. Individual investors direct savings and investment capital into securities like stocks, bonds and mutual funds.

Capital flows are aggregated by the U.S. government and other organizations for the purpose of analysis, regulation and legislative efforts. Different sets of capital flows that are often studied include the following:

• Asset-class movements – measured as capital flows between cash, stocks, bonds, etc.
• Venture capital – investments in startup businesses
• Mutual fund flows – net cash additions or withdrawals from broad classes of funds
• Capital-spending budgets – examined at corporations as a sign of growth plans
• Federal budget – government spending plans

Capital flows can help to show the relative strength or weakness of capital markets, especially in contained environments like the stock market or the federal budget. Investors also look at the growth rate of certain capital flows, like venture capital and capital spending, to find any trends that might indicate future investment opportunities or risks.