Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Leakage

What it is:

Leakage occurs when money leaves an economy. In the investor relations world, leakage also refers to the unauthorized or unanticipated dissemination of information.

How it works (Example):

Let's say interest rates in Country X suddenly surpass interest rates in Country Y. Money begins to leak out of Country X and into Country Y as investors seek higher returns for the same amount of risk.

Why it Matters:

Leakage can have many forms; interest rates are just one way for money to leak out of an economy. High taxes can have the same effect, as can excessive saving or higher interest in purchasing imported goods. In any case, the exit of money from an economy means the businesses in those economies must look for other forms of revenue. The shortage of capital can spur governments to stimulate the economy as a result.