Economic basis
 As Central Banks slowly start to play on the piano of interest rates, interest rate differentials in different currencies become, again, attractive for carry traders.
A carry trade in its basic structure involves a credit in low yielding currency and the investment of this credit amount in a high yielding currency.
A naïve carry trade simply follows the rate differentials. A more sophisticated carry trade looks for reason and shelter. For example a special country has a well-defined exchange-rate-policy, meaning, that the exchange-rate for its domestic money vis a vis another country or a set (basket) of countries shall deviate only xy basispoints from a defined target rate.
For achieving such a goal Centralbanks apply interest rate policy. Historical examples are the European Currency Unit (the predecessor of the EURO) or the long-term peg of the Swedish Krona to a basket of currencies.
A current example are the efforts by the Swiss Centralbank trying to prevent further appreciations of the Swiss Frank, by dictating even negative interest rates.
The trade
 Foreign Exchange contracts are a simple way to effect such an “Interest Rate Arbitrage”. Instead of exch…
Read article
Translate to English Show original

Since you are not logged in, we don't know your spoken language, but assume it is English
Please, sign in or choose another language to translate from the list.

– or –