Capital Flight

Capital flight is described as the movement of money and/or assets from one investment or country to another. This movement is generally in search of increased returns and/or economic or political stability. This phenomena is usually the end result of an economic event that upsets investors and forces them to lose confidence in a specific country or region’s economic strength. Capital flight is most visible in the case of capital outflows from a particular nation. The event is preceded or accompanied by an imbalance of local currency. Inflation may also be the cause. A massive flight of capital may even affect a nation’s total financial system.

Capital flight may also be the result of a wish of the investor to diversify his or her portfolio. The investor may choose to reallocate resources from domestic investments in one country to investments in another country for more substantial economic returns. This type of capital flight, however, is temporary and the money will soon return to the original country after the second investment has paid off.

Country risk

It is the list of risks connected to investments in a specific foreign country. The list of risks includes economic risk, sovereign risk, transfer risk and currency risk. A country may have enough risks to discourage any level of foreign investment. The United States of America is considered as the benchmark nation for country-specific risks.

Return On Investment (ROI)

It is a measure of performance employed to assess the efficiency of a particular investment. ROI is also used to equate the efficiency of a number of disparate investments. The Return On Investment is calculated by ROI= (Gain from the investment – Cost of investment) / Cost of investment

Investors look for higher ROIs in a cluster of assets to make a quality investment decision. It should be kept in mind the input metrics should have sufficient quality to make a sound decision.

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