Currency Carry Trade: CNBC Explains

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