Carry trades involve buying high interest rate currencies and selling low interest rate ones, with the intention of profiting from the interest rate differential. This strategy allows investors to earn a significant return on their investment, but it also carries significant risk, as changes in interest rates or currency exchange rates can quickly wipe out profits or result in losses.

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Carry Trades Involve

Question 21

Multiple Choice

Carry Trades involve

A) Buying low interest rate currencies and selling high interest rate ones
B) Holding a currency trade for a very long time
C) Buying high interest rate currencies and selling low interest rate ones
D) Trading on bandwagon effects
E) arbitrage

Correct Answer: