How are trade deficits financed? The usual answer is either "foreign debt" or "Foreign Direct Investment". But:


Why does that make sense?
And why wouldn't be financed otherwise like from importers taking out bank loans domestically rather than from foreigners?
Finally, it is said that a trade deficit can be financed by Foreign Direct Investment because the domestic currency given in exchange for the imports can only be spent back into the importing country. How does this work when whoever we're importing from is paid in THEIR currency rather than the domestic currency of the importer?


I hope someone more knowledgeable can help me out. Thanks.
Natural resources and gravity determines trade. How the balance of payments is settled is not really important. But there are a few possibilities


a country has a lot of debt and defaults or refis it down to a very low rate to go negative indefinitely;
foreign aid;
moneyprinting that isn't adequately adjusted in foreign exchange;
selling overpriced domestic assets that are not properly accounted in the bop records;
stealing things 


An example of 1 would be any debt crisis.

For 3 for example, Zimbabwe was trade deficit during it's episode

For 4, US startup equity is boosting it's balance of payments. It is not fdi or portfolio investment and includes travel expenses and things not adequately tracked;

For 5, any sort of anti western government expropriating assets, like Zimbabwe, uses that to fund it's balance of payments.