In India, the term 'hot money' is used to refer to
- A.Currency + Reserves with the RBI
- B.Net GDR
- C.Net Foreign Direct Investment
- D.Foreign Portfolio Investment
Correct answer
Explanation
The correct answer is D, Foreign Portfolio Investment. Hot money is foreign capital that flows in quickly to earn short-term returns and can leave just as quickly, and in India this describes portfolio investment in shares and bonds.
Foreign portfolio investors buy listed securities without taking a controlling stake, and they can sell and take their money out within days if interest rates, the rupee or market mood change. Large and sudden outflows of such money can weaken the rupee, pull down stock prices and drain foreign exchange reserves, which is why economists call it volatile or hot. SEBI regulates foreign portfolio investors, and a holding below ten percent of a listed company is generally treated as portfolio investment.
A is wrong: currency plus reserves with the RBI is a part of money supply, not a capital flow. B is wrong: net GDR is the amount Indian companies raise abroad through depository receipts, a narrow item, not the general idea of hot money. C is wrong: foreign direct investment brings long-term ownership and is considered stable money.
Exam tip: FDI = stable, long-term, control; FPI = hot money, short-term, quick exit.
Practice Questions
View allAccording to the law of diminishing marginal utility, as the amount of a good consumed increases, the marginal utility of that good tends to
- A.improve
- B.diminish
- C.remain constant
- D.first diminish and then improve
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Each extra unit of a good gives a consumer less additional satisfaction than the unit before it, so marginal utility falls as consumption rises.
Read the full explanation →Consider the following statements about impact of tax : 1. A tax is shifted forward to consumers if the demand is inelastic relative to supply. 2. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
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The burden of a tax falls more heavily on whichever side of the market is less elastic, the side that cannot easily walk away.
Read the full explanation →UBI, as an alternative for subsidies in poverty alleviation, stands for
- A.Union Basic Income
- B.Undefined Basic Income
- C.Unconditional Basic Income
- D.Universal Basic Income
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UBI is the idea of paying every citizen a fixed sum of money regularly, without conditions, in place of a large number of separate subsidies and welfare schemes.
Read the full explanation →Who among the following is the Chairman of the Fourteenth Finance Commission?
- A.C. Rangarajan
- B.Vijay Kelkar
- C.Y. V. Reddy
- D.Rakesh Mohan
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The Fourteenth Finance Commission, set up in 2013 for the award period 2015-2020, was chaired by Y. V. Reddy, a former Governor of the Reserve Bank of India.
Read the full explanation →Why was constitutional amendment needed for introducing GST?
- A.States were not willing to agree with the Union for introduction of GST without amendment in the Constitution.
- B.GST was to be implemented on concurrent base and Article 246 was inadequate for such a case.
- C.The Empowered Committee of Finance Ministers had recommended for constitutional amendment.
- D.The GST Council had recommended for constitutional amendment so that its power enhances.
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GST is levied by the Union and the States together on the same supply, and Article 246, which splits taxing powers between them through separate lists, did not allow such a concurrent tax.
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