In the case where interest rates are lower in Japan,which of the following is an example of a "carry trade"
A)Increase borrowing in the US,convert to Yuan and invest in financial assets in Japan
B)Increase borrowing in Japan and invest in Japan
C)Increase borrowing in Japan,convert to Dollars and invest in the US
D)Increase borrowing in the US and invest in the US

Question

​In the case where interest rates are lower in Japan,which of the following is an example of a "carry trade"
A)​Increase borrowing in the US,convert to Yuan and invest in financial assets in Japan
B)Increase borrowing in Japan and invest in Japan
C)Increase borrowing in Japan,convert to Dollars and invest in the US
D)​Increase borrowing in the US and invest in the US

Quizplus · Accepted Answer

This is an example of a carry trade, as the investor is borrowing in a lower interest rate country (Japan) and converting the funds to a higher interest rate currency (US dollars), before investing in a financial asset in the US. This allows the investor to earn a higher return than they would have in Japan, due to the higher interest rates in the US. Option A is not a carry trade, as the funds are being converted to Yuan, not invested in a higher interest rate currency. Option B and D both involve borrowing and investing in the same country, which does not qualify as a carry trade.

​In the Case Where Interest Rates Are Lower in Japan,which

In the Case Where Interest Rates Are Lower in Japan,which