[Marxism] The mother of all carry trades

S. Artesian sartesian at earthlink.net
Wed Nov 4 13:52:22 MST 2009


>From "Investment Resources":

Here's an example of a "yen carry trade": a trader borrows 1,000 Japanese 
yen from a Japanese bank, converts the funds into U.S. dollars and buys a 
bond for the equivalent amount. Let's assume that the bond pays 4.5% and the 
Japanese interest rate is set at 0%. The trader stands to make a profit of 
4.5% as long as the exchange rate between the countries does not change. 
Many professional traders use this trade because the gains can become very 
large when leverage is taken into consideration. If the trader in our 
example uses a common leverage factor of 10:1, then she can stand to make a 
profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using 
the example above, if the U.S. dollar were to fall in value relative to the 
Japanese yen, then the trader would run the risk of losing money. Also, 
these transactions are generally done with a lot of leverage, so a small 
movement in exchange rates can result in huge losses unless the position is 
hedged appropriately.

_________
----- Original Message ----- 
From: "Tom Cod" <tcod at hotmail.com>
To: "David Schanoes" <sartesian at earthlink.net>
Sent: Wednesday, November 04, 2009 2:56 PM
Subject: Re: [Marxism] The mother of all carry trades


>
> what's "carry trade"?
>





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