Loading...
CFA Level 2
Economics

Understanding the Carry Trade Motivation

Easy Currency Exchange Rates Carry Trade

A carry trade involves borrowing in a currency with a low interest rate and investing in a currency with a higher interest rate. This strategy aims to profit from the difference in interest rates, often accompanied by exchange rate movements.

Consider a scenario where an investor borrows Japanese yen at an interest rate of 0.5% to invest in Australian dollars that yield 2.5%. If the investor expects the Australian dollar to appreciate against the Japanese yen, what is the primary motivation for executing this carry trade?

Hint

Submitted2.8K
Correct2.4K
% Correct86%