What does that mean?
Xiaobian to introduce it to you!
Hot money, that is, hot money.
Floating capital refers to short-term assets flowing between financial markets in pursuit of high profits. It is characterized by strong speculation, quick liquidity and obvious tendency.
In other words, hot money is international money that flows around the world to earn short-term capital gains such as differences in exchange rates between different countries.
Hot money can also include domestic private money, so it is a bit bigger than the general concept of hot money.
The existence of floating capital can play a positive role in regulating the surplus and shortage of international funds and activating the financial market.
However, its negative effects are also considerable: first, the hot money will shake a country’s exchange rate due to speculative operations, which will cause fluctuations in the foreign exchange market and eventually distort the level of exchange rate;
Second, a large number of floating capital in and out of a country, will cause the large increase and decrease of foreign exchange reserves, promote the big rise and fall;
The third is the rapid movement of hot money, often with the monetary policy of the opposite effect.
For example, when a country raises interest rates to curb inflation, international hot money will flood in, forcing the country to passively increase the amount of money and aggravate inflation.
This will obviously make it more difficult for monetary authorities to stabilize the economy and affect the intended effect of the country’s macroeconomic controls.
Hot money will not only cause economic turmoil and financial crisis, but also spread the crisis to other countries through speculation in the financial market.