Carry Trades: Currency bets are attractive

Banknotes from Japan and the USA

Lately it has been lucrative for investors to borrow in yen and invest the money in the USA.

(Photo: Reuters)

Frankfurt A special form of currency transactions is currently worthwhile for investors. You borrow in low-yielding currency and invest the money in high-yielding currency. Such a carry trade works when the exchange rate of the higher-yielding currency remains stable or appreciates. In this case, investors benefit from interest rate differentials and exchange rate gains.

How risky such bets are, however, was shown in the financial crisis and the pandemic, where carry traders suffered large losses. At the moment, however, the environment is favorable again. “The carry trade is up and running again,” Commerzbank foreign exchange expert Ulrich Leuchtmann recently commented.

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