Which among the following is termed as "Hot Money"?

Correct option is A

Hot Money refers to Foreign Institutional Investments (FII), which are volatile and move quickly in and out of financial markets.

Explanation:
● Hot money is characterized by short-term capital flows aimed at quick profits.
● FIIs invest in stock markets and bonds but can exit rapidly, causing market fluctuations.
● Unlike FDI, FIIs do not invest in physical assets or long-term infrastructure.
● Governments regulate FIIs to prevent excessive volatility in financial systems.
● FIIs are attracted to emerging markets like India due to favorable interest rates and growth opportunities.
● Sudden withdrawal of FIIs can destabilize exchange rates and stock markets.

Information Booster:
● Hot money plays a significant role in determining a country’s foreign exchange reserves.
● FII inflows boost liquidity in financial markets.
● Excessive FII dependence makes economies vulnerable to global shocks.
● FDI, in contrast, involves long-term, stable investments in businesses.
● FIIs are often regulated through caps to limit their market dominance.
● The 2008 financial crisis highlighted the risks of hot money.

Additional Information:

• (B) FDI: Refers to long-term investments in businesses and infrastructure.
• (C) ADR: Allows foreign companies to trade on U.S. stock exchanges.
• (D) GDR: Similar to ADR but facilitates global trading.