As the early 1980s, foreign portfolio investors have purchased an important portion of U.S. treasury bond issues. Discuss the short-term and long-term influences of foreigners’ portfolio investment on the U.S. balance of payments.
As foreigners purchase U.S. Treasury bonds, U.S. BOP will enhance in the short run. Although in the long run, U.S. BOP may deteriorate since the U.S. should pay interests and principals to foreigners. If foreign funds are employed productively and contributes to the competitiveness of U.S. industries, though, U.S. BOP may enhance in the long run.