How do investors make money out of “Hot money”?
Question by sadboy: How do investors make money out of “Hot money”?
I have read that investors put their money in a country, when interest rate is high. Just curious, how do they make money out of that? Do investors get a portion of the money from the interest when they lend to the bank and bank lends to consumers which in turn pay interest rate to the bank?
Answer by I. B. Zoxx
Here is an example of what I think you are talking about:
Right now, Banco Azteca (a large Mexican bank – their web site is linked below) is paying 5.50% interest on savings accounts. Here in the US, you are lucky to be getting 1% interest on the same account. The catch is that you convert your money from dollars to Mexican Pesos when you make the deposit, so you are watching not just the interest rate, but also the exchange rate.
It’s just like a savings account on a US bank – except it’s in pesos instead of dollars. I’m told that banks in Sri Lanka are paying 10% interest, but once again, your deposit is converted to Sri Lankan rupees.
What do you think? Answer below!