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Currency Carry Trade: CNBC Explains

CNBC Explains
Thursday, 8 Aug 2013 | 9:39 AM ET
Currency Carry Trade: CNBC Explains
When there is a disparity in interest rates between countries, investors have an opportunity to employ a currency trading strategy called the carry trade. By borrowing in one currency and buying bonds in another, based on certain economic assumptions, an investor can execute a carry trade. But how does this strategy work and what type of environment is required? Salman Khan of the Khan Academy explains in a simplified example.

When there is a disparity in interest rates between countries, investors have an opportunity to employ a currency trading strategy called the carry trade. By borrowing in one currency and buying bonds in another, based on certain economic assumptions, an investor can execute a carry trade. But how does this strategy work and what type of environment is required? Salman Khan of the Khan Academy explains in a simplified example.

From this video, you’ll understand:

  • The basics of the carry trade
  • The circumstances that must be in place for a successful carry trade.
  • Risks and rewards of a carry trade

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