Question

Which of the following is example for hot currency?
1. FDI
2. FII or FPI
3. Both (A) and (B)
4. Foreign debt

Answer 1

Correct Answer - Option 2 : FII or FPI

The correct answer is FII or FPI.

• Hot Currency:
  • This term is used in the foreign exchange market.
  • It is the temporary name of the hard currency when hard currency exiting an economy at a very fast pace.
  • It refers to funds that are controlled by investors who actively seek short-term returns.
  • Hot money is the flow of funds from one country to another in order to earn a short-term profit on interest rate differences.
  • A global depositary receipt (GDR) is a bank certificate issued in more than one country for shares in a foreign company.
  • Foreign direct investment is an investment in the form of controlling ownership in a business in one country by an entity based in another country.
  • Foreign portfolio investment is the entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country's stock and bond markets. In FPI, the investor does not have direct control over the securities or businesses.
  • Hot money is generally referred to as FPI.