Carry trade strategies involve borrowing lowinterest currencies to invest in higher-yielding assets from "summary" of International Money and Finance by Michael Melvin
Carry trade strategies are based on a simple premise - borrowing low-interest rate currencies and investing the proceeds in higher-yielding assets. This strategy takes advantage of interest rate differentials between countries to generate returns. In practice, investors will typically borrow in a low-interest rate currency, such as the Japanese Yen or Swiss Franc, and use the proceeds to invest in higher-yielding assets in other currencies. The goal is to earn a profit from the interest rate differential between the two currencies. For example, an investor might borrow in Japanese Yen at a low-interest rate and use the funds to purchase Australian dollars, which offer a higher yield. The investor would th...
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