As can be seen from the parity equation, there are three main factors that lead to the cross-border flow of capital: 1. The relative change of interest rate spread, that is, capital usually flows from countries and regions with low interest rates to countries and regions with high interest rates.
2. The change of the expected depreciation rate of the local currency caused by the situation, that is, the rise (fall) of the depreciation pressure faced by the local currency will lead to the transfer of capital from the local currency (foreign currency) to the foreign currency (domestic currency), resulting in capital outflow (people flow).
3. Linkage relationship between interest rate and exchange rate, that is, the direction of capital flow depends not only on interest rate difference and exchange rate level, but also on the mutual influence between interest rate and exchange rate.
