hot money

economics

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Last updated

June 29, 2026

Quick Summary

"Hot money" refers to investment funds that are moved across borders in search of the highest short-term rate of return. This type of investment is characterized by its short-term nature and the primary motivation of maximizing immediate profits.1

While the term "hot money" specifically denotes these speculative, short-term investments, it's important to distinguish it from foreign direct investment (FDI). FDI involves a long-term commitment to an enterprise in another country, aiming for lasting interest and control, often influencing management. FDI can take various forms, such as establishing new facilities, mergers, acquisitions, or joint ventures, and is driven by the pursuit of markets, efficiency, or knowledge.2

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Tobin tax
…deter only speculative flows of hot money—money that moves regularly between financial markets in search of high short-term interest rates. It is not meant to impact long-term investments. The shorter the investment cycle (i.e., the time between buying and selling a currency), the higher the effective rate of tax—thus providing…
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…deter only speculative flows of hot money—money that moves regularly between financial markets in search of high short-term interest rates. It is not meant to impact long-term investments. The shorter the investment cycle (i.e., the time between buying and selling a currency), the higher the effective rate of tax—thus providing…
Read More