EFFECTS OF INTERNATIONAL CAPITAL FLOWS

Main role of the capital market is to perform an efficient allocation of financial resources from those who have a surplus to those who have a deficit, i.e. to enable their easier meeting and faster transactions with financial institutions, instruments and wide range of financial services. Along with the growing volume of the surpluses and deficits expressed grows the need for an efficient financial market that will channel the excess funds to the end users in a simple way and with the least possible cost. Efficient financial markets are undoubtedly important in order to ensure an adequate provision of capital and economic growth. It is important for the portfolio of investor to be efficient, i.e. to bring the best yield for the given risk, i.e. to contain the slightest risk for the given yield level. In addition, the purpose of portfolio formation is to reduce the risk by combining different securities, i.e. by diversification of investments.