Capital controls

Restrictions on moving money into or out of a country, such as taxes on inflows or limits on converting currency. Used to damp volatile flows or defend a peg, at a cost to efficiency and investor confidence.

Where you will meet it

Capital controls appears in 5 learning outcomes on the CFA syllabus. A few of them:

• Set out the top-down and bottom-up influences on a firm's cost of capital
  CFA Level II · Corporate Finance

  “Top-down factors are country and market conditions: capital availability and market depth, interest rates, inflation and the business cycle, the legal and regulatory framework including contract enforcement and investor protection, currency risk and capital controls, and political or country risk.”

• Set out why central banks or governments intervene in currency markets or impose capital controls, and how well such measures work
  CFA Level II · Economics

  “Authorities intervene or impose capital controls to damp volatility, resist appreciation that hurts exporters, defend a peg, or slow hot money flows and asset bubbles.”

• Explain what must be considered when building and running credit portfolios that span several countries
  CFA Level III · Portfolio Management Pathway

  “Emerging market credit adds sovereign and political risk, commodity dependence, capital controls and thinner trading, and issuers may be state-owned or enjoy implicit government support.”

• Explain the risks particular to holding emerging market equities
  CFA Level III · Asset Allocation

  “Accounting and disclosure standards may be looser, capital controls can restrict repatriation, and political intervention can change the rules for whole sectors.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary