Carry trade

Carry trades seek to make money from the fact that the interest rates set by central banks around the world vary considerably. In Japan, for example, the lending rate has been close to zero for some time and is still only 0.5% today - the lowest for any major currency – whereas in Australia it is 6.5% and in New Zealand 8%.

Investors seeking to exploit these differences typically borrow cheaply in Japan to fund investment in assets, such as bonds in the higher yielding currencies hoping to benefit from the large difference in interest rates. This works provided the yen doesn’t suddenly strengthen against the other major currencies. The effect would be to create large capital losses especially for investors who borrowed heavily to fund carry trading.

• See Tim Bennett’s video tutorial: What is the yen carry trade?

MoneyWeek magazine

Latest issue:

Magazine cover
Heading higher?

Or are house prices set to fall?

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

'Would you rather upset God, or have Him just ignore you?'

In the first of three interviews with Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


21 November 1969: The first permanent Arpanet link

A milestone in the formation of the internet, the first permanent Arpanet link was established on this day in 1969 between researchers in the United States.