Question

Q25. Consider the following statements:

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.

Which of the above statements are correct?

• A. a) 1 only
• B. b) 2 only
• C. c) 1 and 2 only
• D. d) None of the above

Answer 1

The correct option is C

c) 1 and 2 only

Hot Money Flows

• In economics, hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate.
• These speculative capital flowsare called ‘hot money’ because they can move very quickly in and out of markets, potentially leading to market instability.