The theory of carry trade profits focuses on the reward-risk ratio. Analysts believe profits from the carry trade exist because:
A) once the big profits have been taken, the remaining profits are too small for the level of risk undertaken.
B) the larger the reward, the smaller the risk.
C) investors will only seek returns that carry no risk.
D) the market has been saturated with too much financial trading, and it needs to settle down before investors would be willing to try again.

Question

Quizplus · Accepted Answer

Carry trade profits are believed to exist because, after significant profits have been made, the remaining profits are perceived as too small relative to the risks involved. This reflects a risk-reward consideration where the potential returns no longer justify the risks, a common scenario in carry trade strategies as market conditions change.

The Theory of Carry Trade Profits Focuses on the Reward-Risk