Hot Money

AAA

DEFINITION of 'Hot Money'

1. Money that flows regularly between financial markets as investors attempt to ensure they get the highest short-term interest rates possible. Hot money will flow from low interest rate yielding countries into higher interest rates countries by investors looking to make the highest return. These financial transfers could affect the exchange rate if the sum is high enough and can therefore impact the balance of payments.

2. Stolen money that is marked so as as to be traceable.


INVESTOPEDIA EXPLAINS 'Hot Money'

1. Banks usually attract "hot money" by offering relatively short-term certificates of deposit that have above-average interest rates. As soon as the institution reduces interest rates or another institution offers higher rates, investors with "hot money" withdraw their funds and move them to another institution with higher rates.


2. Hot money might have been involved in a robbery and tracked through dye marks on each bill or through recorded serial numbers.





RELATED TERMS
  1. CD Ladder

    A strategy in which an investor divides the amount of money to ...
  2. Money Market

    A segment of the financial market in which financial instruments ...
  3. Horizontal Market

    A market diversified so that the products created are able to ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. ...
RELATED FAQS
  1. What are some examples of money market funds?

    Money market mutual funds are designed to offer savers low-risk, liquid and short-term investments. They are normally offered ... Read Full Answer >>
  2. For what types of accounts are demand deposits available?

    There are essentially three types of accounts available as demand deposits: checking accounts, savings accounts and money ... Read Full Answer >>
  3. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  4. How does the velocity of M2 money supply change?

    According to economic theory, the velocity of money is the number of times a unit of currency changes hands over a set period ... Read Full Answer >>
  5. How can I look up average banker's acceptance yields?

    Average banker's acceptance yields are published regularly in the Wall Street Journal and updated continuously on WSJ.com. ... Read Full Answer >>
  6. Besides stocks, what other asset classes can I invest in through ETFs?

    One of the main advantages of exchange-traded funds (ETFs) is that they offer investors the opportunity to invest in an extremely ... Read Full Answer >>
Related Articles
  1. Insurance

    How To Create A Laddered CD Portfolio

    Laddered certificates of deposit offer safe capital and predictable cash flow, while bringing simplicity to your portfolio.
  2. Personal Finance

    Get A Short-Term Advantage In The Money Market

    This investment vehicle is often the perfect stop-gap measure for growing your money.
  3. Options & Futures

    Getting To Know The Money Market

    If you need liquidity and safety on a sum of money, don't forgo potential interest by keeping the funds as cash.
  4. Investing Basics

    What are Cash Equivalents?

    Cash equivalents are money market instruments.
  5. Economics

    Who Are the Baby Boomers?

    Baby boomer is a descriptive term for a person who was born between the years 1946 and 1964.
  6. Investing Basics

    Understanding Related-Party Transactions

    In business, a related-party transaction refers to a transaction where parties on both sides have a common interest or relationship.
  7. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  8. Savings

    Get Better Mileage Out Of Your Savings At The Pump

    U.S. drivers are spending 90 cents less on a gallon of gas than a year ago, about more than $10 a tank. If that’s you, what are you doing with that money?
  9. Investing

    Why Higher Rates Could Be Good News For Consumers

    While rates remain extraordinarily low by historical standards, in the last few months we have witnessed a modest change in the environment.
  10. Investing Basics

    What's a Reverse Repurchase Agreement?

    A reverse repurchase agreement is the buyer side of a repurchase agreement (also called a repo).

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!