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    Question

    Which of the following investments is considered as hot

    money in a financial market?
    A Investments by foreign investors in form of FDI Correct Answer Incorrect Answer
    B Investments by foreign investors in form of FPI Correct Answer Incorrect Answer
    C Investments by foreign Venture funds Correct Answer Incorrect Answer
    D Investments by foreign investors for strategic relations Correct Answer Incorrect Answer
    E Investments by foreign retail investors in IFSC registered entities Correct Answer Incorrect Answer

    Solution

    Foreign Portfolio Investment (FPI) is commonly referred to as "hot money" because of its tendency to move quickly in and out of markets in search of short-term profits or at the first signs of economic trouble.  FPI involves investing in the financial assets of a foreign country, such as equity, bonds, mutual funds, and other securities, without obtaining direct ownership or control over the underlying companies or operations.  The term "hot money" highlights the volatility and potential instability associated with FPI flows. 

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