| Consider the following statements about 'hot money'. |
| 1. This is the fund which is dumped into a country to get the advantage of a favourable interest rate hence brings higher returns. |
| 2. This is the fund which is provided by a bank in US at very short notice and at a very high rate interest and for a longer period of repayment. |
| 3. This is the fund which is pushed into market through Hawala or some other such illegal methods sometimes referred also as black money. |
| Which of the statement(s) given above is /are correct? |
A) Only 1
B) 1 and 2
C) Only 3
D) 1 and 3
Correct Answer: A
Solution :
[a] Hot money is a term that is most commonly used in financial markets to refer to the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate difference and/or anticipated exchange rate shifts. These speculative capital flows are called 'hot money' because they can move very quickly in and out of markets, potentially leading to market instability.
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