When will the Cary Trade dice roll again?
If speculators set up a Carry Trade, they borrow the low interest currency and invest in a high interest currency. For example: you borrow USD 100 million at 1% and sell them to buy Brazil Real (BRL) that yields, let’s say approx 11%. Free rides are only for hitchhikers and the 10% difference is not. The price is called exchange rate risk. The BRL can decrease in value to the USD and wipe out the 10% profit and more. However, if the BRL appreciates in value to the USD you have the double whammy. The BRL exchange rate is very unpredictable and volatile. Since 2011 the BRL has depreciated to USD with approx 50%. Let’s see when greed kicks in and speculators find the guts to roll the USD-BRL carry dice again in search for yield.
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