December 2019
Intermediate to advanced
288 pages
6h 29m
English
book
The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
by Tim Lee, Jamie Lee, Kevin Coldiron
Content preview from The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
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3
Carry, Leverage, and Credit
Carry Trades Are Levered Trades
A currency carry trade involves an implicit bet on the exchange rate for the borrowed currency in terms of the currency of investment remaining relatively stable. Even for the most attractive of currency carry trades, a large adverse move in the currency exchange rate can easily wipe out the interest rate spread. So the currency carry trade is, in essence, a bet on the exchange rate volatility being low, at least relative to what the market might expect. It can therefore be thought of as a “volatility-selling” trade—a bet on volatility declining or at least being low relative to market expectations.
A currency carry trade is also a levered trade. It involves investing in a financial ...
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