Interest Rates Affecting Forex Trades International Mergers and Acquisitions and Currency Values

Interest Rates Affecting Forex Trades

When trading currencies, you are dealing with countries, and countries have interest rates, of course. For example, in the CAD/JPY trade, a trader who was long CAD/JPY would be able not only to make nice gains, but also to earn up to 3% in interest income. The rough estimate of 3% comes from taking Canada's central bank rate, which is the amount earned, and subtracting the 0% rates paid for shorting the Japanese yen. These are un-leveraged rates, which means that with 10 times leverage, for example, net of any exchange rate changes, the interest income would be that much higher. Leverage also makes the trade riskier, which is certainly something to keep in mind when trading FX.

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