cross-border carry trade

A trade in which the investor borrows money in a country that has low interest rates and lends or invests the funds in a country that has high interest rates. The trade relies on currency and interest-rate stability in order to succeed. If the spot currency rate changes too much to keep the interest rate advantage, even though the trade is profitable, money can be lost on the change in the currency’s value. The yen carry trade in the latter part of the 1990s was a popular use of the trade. Traders bought yen and then invested the proceeds in the U.S. Treasury market to earn the differential between the relatively high U.S. interest rates and the very low Japanese interest rates.