What is 'Hot Money'?

What is 'Hot Money'?

Reference - Economy

Meaning

  • Hot money is a capital that quickly and regularly moves between financial markets, which ensures investors, the highest available short-term interest rates.
  • Hot money continuously shifts from countries with low-interest rates to those with higher rates.
  • Normally, Banks bring hot money into an economy by providing short-term certificates of deposit with higher-than-average rates.

Impact

  • Affect the exchange rate.
  • Potentially impact a country's balance of payments.

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