Q. Describe alternative forms of capital inflow to finance external deficits and explain why these methods were used in different times?
Answer: The capital inflows to facilitate finance developing countries' deficits are Bond finance in which developing countries sell bonds to private foreign citizens to finance their deficits. By that time bond finance is a key to get money to solve the deficit of the country. Bank finance which assists developing countries to borrow widely from commercial banks. By that time banks provide more or less a quarter of developing country external finance. Official lending this is use for the reason that developing countries sometimes borrow from official foreign agencies for example the World Bank or Inter American Development Bank. They like to take benefit of these banks for the reason that they to lend at interest rates below market level or on a market basis that permits the lender to earn the market rate of return. Direct foreign investment which permits a foreign largest firm owned by foreigner's residents expands or acquires a subsidiary firm or factory domestically. While WWII direct investment has been a consistently important source of developing country's capital.