Access over 20 million homework & study documents

Fx Carry Trade Strategy

Content type
User Generated
Subject
Risk Management
School
University of Nairobi.
Type
Homework
Rating
Showing Page:
1/3
1
FX Carry Trade Strategy
Student Name
University
Course
Professor
Date

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/3
2
FX Carry Trade Strategy
Future markets represent the agreement to sell or purchase a certain amount of a
security or stock on a certain date in the future. The agreements must be fulfilled by cash
settlement or by physical delivery. Many different commodities, including currencies, are
traded in futures, which forms a basis of a mutual agreement between the seller and the buyer
when purchasing and selling a commodity affected by the currency of indexes. Futures is
common with commodities such as crude oil. The target currencies which possess a high-
interest rate can be strengthened by carrying trade activities and at the same time weaken
currencies that have low-interest rates.
Capital flows generated by FX carry trade have the capability if influencing how a
foreign currency and other markets behave. The carry trade intends to benefit from the
difference in the interest paid and the interest received. The interest rates are set by the
central bank of a country in accordance with the monetary policy of that country. Forex
trading is conducted with currencies, making it the ideal market to implement a carry
strategy. Forex is traded in pairs, and traders sell one currency while buying another
simultaneously. A margin is a small deposit a trader can open and borrow against it to
command a much higher stake. The aim of carrying traders is to capitalize on the prevailing
interest rate differential, which is favorable, and plan to benefit from interest rate
compounding effects. The currency on the left pair is the base currency, while the one on the
right is the quote. A rollover is the value of the interest differential rate credited in a trader's
account. A carry trading strategy involves risk such as adverse movement in the exchange
rate of currency pairs.
When executed with knowledge, carry trade results in a huge profit margin. If a trader
controls a large amount in a trade, this can soon add up. If a currency depreciates, the trader

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/3

Sign up to view the full document!

lock_open Sign Up
Unformatted Attachment Preview
1 FX Carry Trade Strategy Student Name University Course Professor Date 2 FX Carry Trade Strategy Future markets represent the agreement to sell or purchase a certain amount of a security or stock on a certain date in the future. The agreements must be fulfilled by cash settlement or by physical delivery. Many different commodities, including currencies, are traded in futures, which forms a basis of a mutual agreement between the seller and the buyer when purchasing and selling a commodity affected by the currency of indexes. Futures is common with commodities such as crude oil. The target currencies which possess a highinterest rate can be strengthened by carrying trade activities and at the same time weaken currencies that have low-interest rates. Capital flows generated by FX carry trade have the capability if influencing how a foreign currency and other markets behave. The carry ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Great! 10/10 would recommend using Studypool to help you study.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4