Foreign exchange – Can someone please explain what this below statement means?
”Carry traders, who sell the low interest rate Japanese yen for high-yielding currencies during times of high risk sentiment, continued to sell the Australian dollar this morning”. The Australian -Jan 22 2008.
What effect does interest rate have on currency trading?
A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates – which can often be substantial, depending on the amount of leverage the investor chooses to use.
The big risk in a carry trade is the uncertainty of exchange rates
