Speculation Theory

A lot has been said, and we have heard even more, about the yen carry trade. We hear about this even more when the markets head south. The meltdown of global stock markets is often attributed to the unwinding of such currency carry trades. And when the unwinding of currency carry trades takes place on a large scale, stock markets all over the world suffer badly. By definition, currency carry trade is a strategy used in the forex markets in which a trader is involved in selling (borrowing) a currency at a lower interest rate and then buying higher interest bearing bonds. And when the bond matures, the trader again converts the currency (at the prevalent exchange rate) to repay his debt. Su

This article was originally published on March 26, 2008.