Define balance of payments in international capital flows, Business Economics

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Define the balance of payments problem in international capital flows.

Balance of payments (BoP): It inflows capital as like:

• Foreign direct investment (FDI) into machinery and plant. In the long term Gross Domestic Product rises but profits are sent back to investing country. The role of multi-national companies.

• Short term loans that can be withdrawn at short notice leading to abrupt balance of payments and exchange rate crisis as like Argentina in 2002.

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