Keeping track of observations in flow of funds analysis Keeping Track of Observations : continued

Explaining Flow of Funds

Keeping Track of What We Observe

The various sectors and instruments that make up the capital market are interrelated.

We start with the instrument table for the type of security whose market interests us.

From there, using the sectors listed in the left column of the instrument table, we go to sector tables of the players that make up our target market.

Finally, in order to understand the motivation of these sectors, we examine , in turn, other instruments that these players are buying or selling, going from a specific sector table back to the relevant instrument tables.


The above graphic shows how we use this relationship for progressive analysis:

From securities to players back to securities, and so on.

So as not to get lost in this maze of relationships, it is important to take notes and draw inferences at each step.

We can learn a lot about supply and demand in the capital market just by reading and thinking about flow of funds accounts.


Before proceeding, check your progress:


The best place to start Capital Flow Analysis of the equity market would be:
Choice 1 The sector table for equities.
Choice 2 The sector table for households.
Choice 3 The instrument table for equities.
Choice 4The instrument table for mortgages.
The labels in the left column of an instrument table refer to:
Choice 1 Other instrument tables.
Choice 2 Sector tables.
Choice 3 NIPA data sheets.
Choice 4 Price tables.
The recommended sequence for examining flow of funds tables for Capital Flow Analysis is:
Choice 1 Sectors first, then instruments.
Choice 2 Sectors first, then NIPA.
Choice 3 One instrument first, then sectors.
Choice 4 All instruments first, the one sector.

Investment Tutorial: Flow of Funds Analysis  learning module : continued >

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