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Please Help - Question about Trade Financing

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2/1/2020 6:59:50 PM
Posted: 2 years ago
I don't understand the concept of when a nation imports more than it exports, Running a trade deficit, It has to finance the difference by borrowing from other nations. From my understanding, Lets say the United States imports from England. The U. S business goes to a bank and exchanges dollars for pounds. It then uses the pounds to pay for the imports. As long as theres some type of demand for dollars, The bank will exchange dollars for pounds at a certain exchange rate. So running a trade deficit would only affect the exchange rate. Why would the United States need to "finance" the difference? Thanks

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