In India, the term ‘hot money’ is used to refer to

[amp_mcq option1=”Currency + Reserves with the RBI” option2=”Net GDR” option3=”Net Foreign Direct Investment” option4=”Foreign Portfolio Investment” correct=”option4″]

This question was previously asked in

UPSC CDS-2 – 2016

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In India, the term ‘hot money’ is used to refer to D) Foreign Portfolio Investment.

‘Hot money’ refers to speculative capital flows that move quickly in and out of countries, seeking the highest short-term returns or reacting to expected exchange rate movements. Foreign Portfolio Investment (FPI), which involves investing in stocks, bonds, and other financial assets, is typically considered more liquid and volatile than Foreign Direct Investment (FDI), and thus is often referred to as ‘hot money’ because of its potential for rapid withdrawal during times of economic uncertainty.

Foreign Direct Investment (FDI) involves establishing or acquiring businesses in a foreign country and is generally considered a long-term investment. Currency plus reserves with the RBI relate to the country’s monetary base and foreign exchange reserves. Net GDRs are a mechanism for Indian companies to raise foreign currency, but FPI encompasses a broader category of short-term financial investments which fit the description of ‘hot money’.

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