Carry trade
Carry trade is like borrowing money from someone to buy something that can make you money.
Let's say you have $10 and your friend has $20. Your friend is willing to lend you their money for a little while as long as you promise to give them back $22 in a month.
You decide to take their money and use it to buy something that you know will make you money. For example, you buy some special seeds that will grow into a plant that you can sell for $25 next month.
So you take the $20 from your friend and use it to buy the seeds. Then, when you sell the plant for $25, you use $22 of that money to give back to your friend and now you have $3 in profits.
This is kind of like what people do in the financial world. They borrow money from a country with a low interest rate (like Japan) and use that money to invest in a country with a higher interest rate (like the US).
This can be a little more complicated because you need to use foreign currencies and there can be risks if the exchange rates change, but that's the basic idea of a carry trade. You borrow money at a low interest rate and use it to invest somewhere you think you can make more money.
Let's say you have $10 and your friend has $20. Your friend is willing to lend you their money for a little while as long as you promise to give them back $22 in a month.
You decide to take their money and use it to buy something that you know will make you money. For example, you buy some special seeds that will grow into a plant that you can sell for $25 next month.
So you take the $20 from your friend and use it to buy the seeds. Then, when you sell the plant for $25, you use $22 of that money to give back to your friend and now you have $3 in profits.
This is kind of like what people do in the financial world. They borrow money from a country with a low interest rate (like Japan) and use that money to invest in a country with a higher interest rate (like the US).
This can be a little more complicated because you need to use foreign currencies and there can be risks if the exchange rates change, but that's the basic idea of a carry trade. You borrow money at a low interest rate and use it to invest somewhere you think you can make more money.
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