Questions tagged [carry-trade]

A carry trade is typically based on borrowing at a low interest rate and investing in an asset that provides a higher rate of return.

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Carry trading using forward contracts

I am curious as to how someone performs a carry trade using forward contracts. I've read that you go long on the currency that has the higher interest rate but this confuses me. In particular, I've ...
0 votes
1 answer
249 views

Can a non-Turk borrow Turkish lira?

Turkey is currently on the cusp of a hyperinflation apparently triggered by its president's policy of maintaining nominal interest rates far below inflation. Thus Turkish banks are currently giving ...
29 votes
8 answers
14k views

What stops you from using fixed income in developing countries? [duplicate]

I was recently visiting a developing country and noticed that their interest rates are very high — ~15% with government bonds promising ~13% annually. I was just thinking, if the bid ask spread for ...
3 votes
1 answer
1k views

Understanding bond margin, carry trade fundamentals

US Treasuries that have less than 6 months till maturity allow for 100x leverage, as the regulatory requirement is to put 1% of the market value down for each bond. So a $1,000,000 account could hold ...
61 votes
3 answers
7k views

How can I invest in country A to take advantage of their great interest rate while I live in country B?

If I live in the US, for example, where current interest rates are practically nil, how can I take advantage of the fact that interest rates in Australia are almost 5%?
13 votes
2 answers
854 views

Why does the currency carry trade work?

I understand the carry trade mechanism, but I wonder why it works, or why it doesn't work. Each currency has an interest rate associated with it. The Yen (JPY) has historically had a very low ...