Question

Many a times we read in the newspapers a term "HOT MONEY".

Which of the following is the correct definition of HOT MONEY?
A. This is the fund which is dumped into a country to get the advantage of a favourable interest rate and hence brings higher returns.
B. This is the fund which is provided by a bank in US$ at very short notice and at a very high rate of interest and for a Ionger period of repayment
C. This is the fund which is pushed into market through Hawala or some other such illegal method and is sometimes referred to also as Black Money.

• A. Only (A) is correct
• B. Both (A) and (B) are correct
• C. Only (C) is correct
• D. Both (A) and (C) are correct

Answer 1

Answer: (A)

Only (A) is correct

Hot money is defined as capital which is frequently transferred between financial institutions in order to maximize interests or capital gains. It exists not only in regard to currencies of different countries but also in reference to capital invested in competing businesses. Hence, the given statement is correct with respect to hot money.