Final answer:
Foreign investors buying U.S. stocks and bonds does not directly affect the current account balance but the income from these investments does as an import of income. An increased trade deficit leads to a more negative current account balance. Financial events can represent flows into or out of the Mexican economy.
Step-by-step explanation:
When foreign investors buy more U.S. stocks and bonds, this activity itself does not directly affect the current account balance. Instead, it is recorded in the financial account, which represents international ownership of assets. However, the income generated from those investments, such as dividends from stocks or interest from bonds, is recorded in the current account as a debit, because it represents a financial outflow from the U.S. to foreign investors. Since this is an import of income, it would contribute to a decrease in the current account balance.
Regarding the trade deficit of the United States, if it increases, it means that imports have grown faster than exports. This difference between exports and imports, both key components of the current account, will lead to a more negative current account balance. Thus, a growing trade deficit directly contributes to a decrease in the current account balance, making it more negative.
In the case of the Mexican economy, financial flows are determined by whether money is entering or leaving the country. Events where foreign entities invest in Mexico or remittances are sent to Mexico represent financial flows into the Mexican economy. Conversely, events such as paying for foreign services or repatriating profits to other countries represent financial flows out of the Mexican economy.