Irfan Ahmed, PhD

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INTERNATIONAL CAPITAL FLOWS ž   Purchases or sales of real and financial assets across international borders ž   A country with greater investment opportunities than savings can fill the savings gap by borrowing from abroad. ž   International capital flows allow countries to run trade imbalances. ž   International financial markets allocate savings to productive capital in different countries. ž   International financial markets are subject to the laws of at least two countries. ž   Capital flows usually represent portfolio investment or direct foreign investment. ž   The DFI positions inside and outside have risen substantially over time, indicating increasing globalization. ž   In particular, both DFI positions increased during periods of strong economic growth. ž   Capital Inflows ž   Purchases of domestic assets by foreign households and firms ž   Capital Outflows ž   Purchases of foreign assets by domestic households and firms ž   Net Capital Inflows ž   Capital inflows minus capi

  Stock Market plays a vital role in mobilizing the savings from a large pool of savers and channelizing these funds into fruitful investments. The investors who invest in stock exchange have the only consideration and that is to maximize wealth. The increasing international diversification, cross-market return correlations, adoption of floating exchange rates by many countries, have increased the opportunities of investment decisions and portfolio diversification decisions (Aydemir and Demirhan, 2009). The return on stocks is based on a number of factors, the exact number is not yet known. Many studies tried to explain the relationship of macroeconomic factors like GDP, exchange rate, interest rates, money supply, foreign investment and inflation etc with the stock prices (Shew, 2008; Aydemir and Demirhan, 2009; Eleftheriou and Apergis, 2002; Li and Wu, 2008). There are two explanations for the relationship of exchange rates and stock prices. The flow-oriented model approach as descri