Carry trade

Carry trades seek to make money from the fact that the interest rates set by central banks around the world vary considerably.

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?

Most Popular

Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
5 top UK tech stocks
Investments

5 top UK tech stocks

The UK market has never been considered a fertile hunting ground for tech stars. But there are plenty of promising companies beyond the old economy, s…
23 Mar 2023