BANKING AFFAIRS

Detailed explanation-1: -Hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit. 2. These speculative capital flows are called ‘Hot money’ because they can move very quickly in and out of markets.

Detailed explanation-2: -Hot money signifies currency that quickly and regularly moves between financial markets, that ensures investors lock in the highest available short-term interest rates. Hot money continuously shifts from countries with low-interest rates to those with higher rates.

Detailed explanation-3: -"Hot money” refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the market for short-term, high interest rate investment opportunities. A typical short-term investment opportunity that often attracts “hot money” is the certificate of deposit (CD).

Detailed explanation-4: -Inflow of massive capital with short investment horizon (hot money) could cause asset prices to rally and inflation to rise. The sudden inflow of large amounts of foreign money would increase the monetary base of the receiving country (if the central bank is pegging the currency), which would help create a credit boom.

Detailed explanation-5: -Hot money can also refer to moving money within a domestic economy. In this context, investors are looking for short-term interest rates offered by domestic banks. Domestic hot money investing moves between banks, looking for the highest interest rate offered on short-term banking products.