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Currency carry trades in Latin America

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  • Bank for International Settlements

Abstract

This report seeks to shed light on the characteristics of currency carry trades in Latin America. Partly reflecting the degree of financial market integration and development, as well as the effects of regulation, carry trades in the region have typically been implemented by taking long forward positions in foreign exchange derivatives markets (offshore or onshore), or in some cases through the acquisition of domestic debt securities in destination currencies. Carry trades have traditionally been implemented at short investment horizons by highly leveraged investors such as hedge funds. However, interviews with market participants have indicated that currency carry trade strategies and investor composition have changed significantly in Latin America since the global financial crisis due to the reduced attractiveness of carry trade investments, shortage of financing for risky, highly leveraged investments like carry trades, and the effects of regulation. Partly as a result, in recent years real money investors who rely less on leverage and who have longer investment horizons have reportedly played a larger role in cross-border portfolio investment, while the relative importance of hedge funds has been declining.

Suggested Citation

  • Bank for International Settlements, 2015. "Currency carry trades in Latin America," BIS Papers, Bank for International Settlements, number 81.
    • Handle: RePEc:bis:bisbps:81
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    References listed on IDEAS

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    Cited by:

    1. Fredy Gamboa-Estrada, 2016. "Carry Trade y Depreciaciones Bruscas del Tipo de Cambio en Colombia," Borradores de Economia 957, Banco de la Republica de Colombia.
    2. Bruno Thiago Tomio, 2019. "Carry trade in developing and developed countries : a Granger-causality analysis with the Toda-Yamamo to approach," Post-Print halshs-03131073, HAL.
    3. Bruno Thiago Tomio, 2020. "Carry trade in developing and developed countries: A Granger causality analysis with the Toda-Yamamoto appr," Economics Bulletin, AccessEcon, vol. 40(3), pages 2154-2164.

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