Aneka Info

Carry the financial terms of the revenue from owning property ("positive carry") or maintenance costs of assets (the "negative carry"). For example, holding bonds with a coupon and 10% financing with a loan that costs only 3% could be viewed as a positive carry trade. Since receiving 10% of positive interest and pay only 3% in the negative interest. On the other hand, holds the goods (eg aluminum) may be negative because you wear a lead storage costs, and perhaps the depreciation costs of goods and not receiving income from it.

an important point in order to carry trades that are not arbitrages. arbitration makes money no matter what. carry trade makes money only if nothing changes. In the above example, the cost of financing the bond position could rise from 3% to 13%, in which case they would start losing money.

Now that we know what "bear" is, as "carry trades "?

Although there are also trades in other asset classes (interest rates or commodities as we have seen), when people see the "carry trade" without further detail, those relating to forex. Carry trade is borrowing in low yield currencies (such as JPY and CHF) and investments in high yield currencies. Just like Bond scenario, the idea is to have a higher income on investments foot store, but the financing leg. In theory (and there are several theories about this, so not everyone may agree), uncovered interest rate parity to this Forex strategy should yield a profit. This is because a positive difference in interest rates between two currencies should equal the rate at which high yielding currencies to depreciate against the low yield currency. Do not forget the trader keeps the carry trade is a long high yielding currencies and short low-yielding one.

All in all, USD and JPY are by far the most widely used means the currency carry trade. Some authors claim carry trades can have a devastating impact on the country's forex, as it would accelerate the depreciation of the currency. May this also applies to emerging markets and smaller economies. However, there is considerable empirical evidence in macroeconomics that big economies are quite immune to the effects of carry trading, thanks to the large amount of cash in circulation in relation to notionals traded with a back carry trades.