Describe alternative forms of capital inflow to finance external deficits and explain why these methods were used in different times?

Question

What will be an ideal response?

Answer 1

The capital inflows that finance developing countries' deficits are: Bond finance in which developing countries sell bonds to private foreign citizens to finance their deficits. At that time bond finance is a key to get money to solve the deficit of the country. Bank finance, which help developing countries to borrow widely from commercial banks. At that time banks provide more or less a quarter of developing country external finance. Official lending, this is use because developing countries sometimes borrow from official foreign agencies such as the World Bank or Inter American Development Bank. They like to take advantage of these banks because they to lend at interest rates below market level or on a market basis that allows the lender to earn the market rate of return. Direct foreign investment, which allows a foreign largest firm owned by foreigner's residents, acquires or expands a subsidiary firm or factory domestically. Since WWII, direct investment has been a consistently important source of developing country's capital.