currency carry trade

Definition

An exchange of currencies, where an investor will exchange a specific amount of one currency for another currency which can be invested at a higher interest rate. The investor will then invest the new currency in a risk-free security, such as a bond, in hopes of earning more interest over time than could have been earned through investing the original currency. As long as the exchange rates stay the same, the investor will be earning money, but if the value of the original currency rose, the investor could lose money from this situation.
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yen carry trade carry trade