The investment targets of hot money are mainly foreign exchange, stocks and their derivatives markets, which are characterized by strong speculation, quick liquidity and strong concealment.
The generation and expansion of hot money are caused by many factors. First of all, in the 1970s and 1980s, some countries began to relax financial control and lift the restrictions on capital inflow and outflow, which made it possible to form hot money. Secondly, the new technological revolution has accelerated the spread of financial information around the world, greatly reduced the cost of international capital allocation and increased the speed of capital flow. Thirdly, financial innovations represented by forward foreign exchange, currency swap and interest rate swap, forward interest rate agreement and floating interest rate bills provide new investment varieties and channels for hot money. These factors have accelerated the globalization of financial markets, greatly increased the total amount of global international capital flows, and the scale and influence of hot money have also increased.
In view of the characteristics of hot money, it is not easy to identify and determine its scale. Basically, all methods to measure the scale of hot money are based on the balance of payments. Therefore, a thorough understanding of the balance of payments structure is an important prerequisite for accurately estimating the scale of hot money. However, some experts pointed out that hot money is not static, and some long-term capital can also be converted into short-term capital under certain circumstances, and short-term capital can also be converted into hot money. The key lies in whether the economic and financial environment will lead to the change of capital from investment to speculation.
This information does not constitute any investment advice, and investors should not use this information to replace their independent judgment or make decisions only based on this information.