How the World Works

Carry trade

Borrowing in a currency with low interest rates to invest in one with higher rates, and pocketing the difference. It pays while exchange rates are calm, and can unwind violently when they move.

Example

For years investors borrowed in yen at near-zero rates to buy dollar assets. When they rushed to repay in August 2024, the yen jumped about 12% against the dollar in a month.

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