Carry Trade

A carry trade is an investment strategy where an investor borrows money at a low interest rate and then invests that money in an asset that offers a higher return. For example, someone might borrow in a currency with low interest, like the Japanese yen, and invest in currencies or bonds that yield higher returns, like the Australian dollar. The goal is to profit from the difference between the low borrowing cost and the higher return from the investment, profiting from what’s called the "carry." However, this strategy also carries risks if currency values change unexpectedly.