In the case where interest rates are higher in Canada,which of the following is an example of a "carry trade"
A)Increase borrowing in the US,convert to Canadian dollars and invest in Canada
B)Increase borrowing in the US and invest in the US
C)Increase borrowing in Canada,convert to dollars and invest in the US
D)Increase borrowing in Canada and invest in Canada

Question

​In the case where interest rates are higher in Canada,which of the following is an example of a "carry trade"
A)​Increase borrowing in the US,convert to Canadian dollars and invest in Canada
B)Increase borrowing in the US and invest in the US
C)Increase borrowing in Canada,convert to dollars and invest in the US
D)​Increase borrowing in Canada and invest in Canada

Quizplus · Accepted Answer

A carry trade involves borrowing money in a country with a low-interest rate, converting it to the currency of a country with a higher interest rate, and investing it in that country to earn a higher return. In this case, borrowing in the US (with low-interest rates) and converting it to Canadian dollars (with high-interest rates) and then investing in Canada would be an example of a carry trade. Therefore, option A is the correct choice.

​In the Case Where Interest Rates Are Higher in Canada,which

In the Case Where Interest Rates Are Higher in Canada,which