Hot Money

What is 'Hot Money'

Hot money is 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.


BREAKING DOWN '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. Cost Of Funds

    The interest rate paid by financial institutions for the funds ...
  2. Money Supply

    The entire stock of currency and other liquid instruments in ...
  3. Negative Interest Rate Policy (NIRP)

    A negative interest rate policy (NIRP) is an unconventional monetary ...
  4. Hot IPO

    An initial public offering that appeals to many investors and ...
  5. Variable Interest Rate

    An interest rate on a loan or security that fluctuates over time, ...
  6. Money Market Fund

    An investment fund that holds the objective to earn interest ...
Related Articles
  1. Investing Basics

    How Interest Rates Affect The Stock Market

    Whether you're buying lunch, a home or a stock, you're influenced by interest rates.
  2. Options & Futures

    How Interest Rates Affect The U.S. Markets

    Interest rates can have both positive and negative effects on U.S. stocks, bonds and inflation.
  3. Retirement

    Introduction To Retirement Money Market Accounts

    Money market funds are used in retirement plans and accounts because they are liquid, stable and pay competitive rates of interest.
  4. Mutual Funds & ETFs

    Why Money Market Funds Break The Buck

    These funds are noted for their safety in a rough market. Read on to find out why.
  5. Forex Fundamentals

    6 Factors That Influence Exchange Rates

    An in depth look at out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  6. Retirement

    The Pros And Cons Of Money Market Funds

    Find out whether stocking your money in these accounts will stand up to the test of time.
  7. Economics

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  8. Economics

    Macroeconomics: Money And Banking

    By Stephen Simpson TMoney can be thought of as any good that is widely used or accepted in the transfer of goods and services. Today, there are three common forms of money in use. Commodity ...
  9. Credit & Loans

    How Interest Rate Cuts Affect Consumers

    Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here.
  10. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
RELATED FAQS
  1. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of interest ... Read Answer >>
  2. How does money supply affect interest rates?

    Read about the link between the supply of money and market interest rates, and find out why money supply alone can't explain ... Read Answer >>
  3. Are money market accounts for short-term investments a good idea?

    Learn whether money market accounts are good ideas for short-term investments. Money market accounts combine aspects of a ... Read Answer >>
  4. How can an investor reduce interest rate risk?

    Learn about the different ways investors can reduce interest rate risk. Locking in interest rates increases certainty for ... Read Answer >>
  5. Does it make sense for me to have a money market account if I don't want to buy any ...

    Saving funds within a money market account or mutual fund does not have to be limited to those wanting to buy or sell securities ... Read Answer >>
  6. What determines the interest rate in my money market account?

    Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center