... and permits greater vulnerability to changes in international investors' perception of country incentives and risks. Almost all of the countries affected by financial turmoil in the last few years had one thing in common - large ratios of short-term capital inflows, whether public or private. In each case, large short-term liabilities combined with relatively scarce internationally liquid assets resulted in extreme vulnerability to a confidence crisis and a reversal of capital flows. (Rodrik D & Velasco A, 1999) This essay attempts to evaluate the impact of short-term capital flows into emerging markets, for which, it will highlight the concerned areas of financial market behavior. Some advantages and drawbacks of such capital inflows will also be discussed with reference to empirical evidence. Moreover, it will endeavor to determine whether unregulated capital flows are a feasible option for the stability and development of emerging economies. If not, an attempt will be made to ...

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