Most of the money that we pay to foreigners to finance our current accounts deficit

Question

Quizplus · Accepted Answer

Foreigners who hold dollar-denominated assets resulting from the current accounts deficit have two choices: They can either invest the money back in the US, or they can exchange it for their own currency. When they invest in the US, they buy shares of companies, bonds issued by the government, and other financial instruments. Therefore, most of the money that we pay to foreigners to finance our current accounts deficit flows back to the US in the form of investment funds.

Most of the Money That We Pay to Foreigners to Finance