There are two main factors that impact exchange rate movement from a fundamental perspective : capital flows and trade flows
- Capital flows, measure the net amount of a currency that is being purchased or sold due to capital investments. A positive capital flow balance implies that foreign inflows of physical or portfolio investments into a country exceed out flows. A negative capital flow balance indicates that there are more physical or portfolio investments bought by domestic investors than foreign investors.
- Trade flows, measuring exports vs imports. Trade flows are the basis of all international transactions. It is important for traders to keep abreast of economic data relating to this balance and understand the implications of changes in the balance of payments
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