Comments on: An explanation of the carry trade http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/ because the economy is run by chimps Fri, 19 Feb 2010 03:20:04 +0100 http://wordpress.org/?v=2.8.4 hourly 1 By: Dollar Carry Trade « Threshing Floor http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-688 Dollar Carry Trade « Threshing Floor Fri, 09 Oct 2009 11:23:45 +0000 http://www.economonkey.com/?p=3#comment-688 [...] For a very basic account of the Yen carry trade, read here: http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/ [...] [...] For a very basic account of the Yen carry trade, read here: http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/ [...]

]]> By: investorsconundrum.com » The Yen carry trade and S&P 500 correlation http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-458 investorsconundrum.com » The Yen carry trade and S&P 500 correlation Tue, 19 May 2009 19:42:45 +0000 http://www.economonkey.com/?p=3#comment-458 [...] you can see in the graph, the Yen carry trade began in 2003 and still continues. As you can see the correlation is [...] [...] you can see in the graph, the Yen carry trade began in 2003 and still continues. As you can see the correlation is [...]

]]> By: Deflation or inflation - what will happen in the UK? | economonkey http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-308 Deflation or inflation - what will happen in the UK? | economonkey Sat, 06 Dec 2008 21:18:27 +0000 http://www.economonkey.com/?p=3#comment-308 [...] stumbled on with a deflationary home economy, exporting inflation to other countries via the carry trade through its low interest rates), but things are rather different here, as the UK is a nation of [...] [...] stumbled on with a deflationary home economy, exporting inflation to other countries via the carry trade through its low interest rates), but things are rather different here, as the UK is a nation of [...]

]]> By: Alex http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-259 Alex Mon, 10 Nov 2008 23:00:11 +0000 http://www.economonkey.com/?p=3#comment-259 Useful stuff, thanks daveJ. Is this an increase in M4 for the currency concerned? I'm still finding some of the Mx figures bizarre, even with the recent BoE clarification. Useful stuff, thanks daveJ. Is this an increase in M4 for the currency concerned? I’m still finding some of the Mx figures bizarre, even with the recent BoE clarification.

]]> By: dave J http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-231 dave J Mon, 27 Oct 2008 11:25:15 +0000 http://www.economonkey.com/?p=3#comment-231 Dear Alex: Thanks for your explanation in understanding the carry trade. Frank's question is a good one but I think it's important to understand the role between the Private Bank "PB", and the Government's Central Bank"CB" as well as the role of the investor and the overall market. For example, if an investor borrows the target currency from PB, he is effectively causing the PB to ask the CB to issue more of the target currency (Thus, PB is effectively borrowing from CB in order to lend to investor. CB is the ultimate issuer of the target currency and therefore CB is increasing the money supply). I believe basic economics would suggest this will dilute the target currency, since there is more supply out there and also correspondingly less demand (since more people are selling the target currency than are buying). Likewise, if investor now decides to pay back this loan, he now has to go out and find yen creating greater demand without a corresponding increase in the supply of the target currency. Also, this will eventually reduce the supply of the target currency when PB pays CB and removes it from the currency system possibly causing a further increase in the target currency. Dear Alex:

Thanks for your explanation in understanding the carry trade.

Frank’s question is a good one but I think it’s important to understand the role between the Private Bank “PB”, and the Government’s Central Bank”CB” as well as the role of the investor and the overall market.

For example, if an investor borrows the target currency from PB, he is effectively causing the PB to ask the CB to issue more of the target currency (Thus, PB is effectively borrowing from CB in order to lend to investor. CB is the ultimate issuer of the target currency and therefore CB is increasing the money supply). I believe basic economics would suggest this will dilute the target currency, since there is more supply out there and also correspondingly less demand (since more people are selling the target currency than are buying). Likewise, if investor now decides to pay back this loan, he now has to go out and find yen creating greater demand without a corresponding increase in the supply of the target currency. Also, this will eventually reduce the supply of the target currency when PB pays CB and removes it from the currency system possibly causing a further increase in the target currency.

]]> By: Hot Topics - Finance « SGSITS eLearning http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-154 Hot Topics - Finance « SGSITS eLearning Mon, 30 Jun 2008 14:20:05 +0000 http://www.economonkey.com/?p=3#comment-154 [...] Carry trade [...] [...] Carry trade [...]

]]> By: Alex http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-90 Alex Wed, 09 Apr 2008 08:09:30 +0000 http://www.economonkey.com/?p=3#comment-90 @Furu: money management matters more than leverage. Is it better to leverage 10:1 with £1,000 or leverage 100:1 with £100? Either way a fairly small move would wipe you out. Whatever you do, start small. Currency swings can be huge. As always, only invest what you can afford to lose. @Charles: you could set up a currency trading account and 'short' the Yen against other currencies that way. If you actually wanted Yen in your hand (or bank account) to invest elsewhere, though, I don't know how you'd do that. Easy enough for a commercial investor, probably rather more difficult for a retail investor. @Frank: good point, and in all honesty I'm not sure. It's certainly the way things have been (until the middle of last year when the carry trade started to go 'twang'). It might have something to do with the relative 'velocities' of the borrowed money (from your broker) versus the sold money (on the open market). When I have time I'll look into this some more, unless anyone else would like to chip in here? @Furu: money management matters more than leverage. Is it better to leverage 10:1 with £1,000 or leverage 100:1 with £100? Either way a fairly small move would wipe you out. Whatever you do, start small. Currency swings can be huge. As always, only invest what you can afford to lose.

@Charles: you could set up a currency trading account and ’short’ the Yen against other currencies that way. If you actually wanted Yen in your hand (or bank account) to invest elsewhere, though, I don’t know how you’d do that. Easy enough for a commercial investor, probably rather more difficult for a retail investor.

@Frank: good point, and in all honesty I’m not sure. It’s certainly the way things have been (until the middle of last year when the carry trade started to go ‘twang’). It might have something to do with the relative ‘velocities’ of the borrowed money (from your broker) versus the sold money (on the open market). When I have time I’ll look into this some more, unless anyone else would like to chip in here?

]]> By: Frank http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-87 Frank Fri, 04 Apr 2008 14:17:10 +0000 http://www.economonkey.com/?p=3#comment-87 Thanks for the article Alex, it was very well written. I am not clear on your response to Jeff's question about the effect of the carry trade on the value of the target currency. It seems that in the carry trade practice, the amount borrowed in the target currency is equal to the amount sold in the target currency in the purchase another currency (or other asset). In this case, wouldn't the value of the currency be fixed because there is an equal amount of buying and selling? Thanks for the article Alex, it was very well written. I am not clear on your response to Jeff’s question about the effect of the carry trade on the value of the target currency. It seems that in the carry trade practice, the amount borrowed in the target currency is equal to the amount sold in the target currency in the purchase another currency (or other asset). In this case, wouldn’t the value of the currency be fixed because there is an equal amount of buying and selling?

]]> By: Charles http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-86 Charles Fri, 04 Apr 2008 01:18:30 +0000 http://www.economonkey.com/?p=3#comment-86 How can an individual investor borrow in yen? How can an individual investor borrow in yen?

]]> By: Furu http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/comment-page-1/#comment-83 Furu Tue, 01 Apr 2008 10:35:31 +0000 http://www.economonkey.com/?p=3#comment-83 How much you recommend to leverage to use carry trade. Some forex accounts offer 200:1 but based on my knowledge most professional investment banks wont even do 5:1 I used to be invested in a Forex Fund that was leverage 3:1 I like to play around 4:1 do you think it is satisfactory Nice Writeup How much you recommend to leverage to use carry trade.

Some forex accounts offer 200:1 but based on my knowledge most professional investment banks wont even do 5:1

I used to be invested in a Forex Fund that was leverage 3:1

I like to play around 4:1 do you think it is satisfactory

Nice Writeup

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