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The Gold Carry Trade

In: The Gold Cartel

Author

Listed:
  • Dimitri Speck

Abstract

A carry trade is an interest differential business, which consists of borrowing money in a low-yielding currency for the sole reason of investing the proceeds in a higher-yielding one. It was, for instance, possible a few years ago to take on debt in Japanese yen at 1 per cent and receive 9 per cent by investing in New Zealand dollars. The difference of 8 per cent is the predictable profit. However, to this it must be added that at the time the loan is paid back, the then reigning exchange rate will be applied. In the above example, there will be a loss if the New Zealand dollar has fallen by about 8 per cent after a year has passed. The profit thus depends on the course of the exchange rate. It is in the carry trader’s interest that the currency he has invested in rises and the currency he has borrowed in falls.

Suggested Citation

  • Dimitri Speck, 2013. "The Gold Carry Trade," Palgrave Macmillan Books, in: The Gold Cartel, chapter 0, pages 44-45, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-28643-7_11
    DOI: 10.1057/9781137286437_11
    as

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