If foreign holdings of U.S.dollars increase,holding all else constant
A)the balance on the U.S.financial account will increase.
B)the balance on the U.S.current account will increase.
C)the balance on the U.S.capital account will increase.
D)the U.S.balance of trade will increase.

Question

Quizplus · Accepted Answer

When foreign holdings of U.S. dollars increase, it implies an increase in demand for U.S. assets. This will lead to an increase in the U.S. financial account balance since foreigners would need to purchase U.S. assets using their currency. Holding all else constant, the balance on the current account and capital account will not be affected. The U.S. balance of trade is unlikely to be affected directly by an increase in foreign holdings of U.S. dollars.

If Foreign Holdings of U