Question

n the case where interest rates are higher in Canada, which of the following is an example of a "carry trade" a. ​Increase borrowing in the US and invest in the US b. ​Increase borrowing in Canada and invest in Canada c. ​Increase borrowing in the US, convert to Canadian dollars and invest in Canada d. ​Increase borrowing in Canada, convert to dollars and invest in the US

Answer 1

Answer:

The correct answer is letter "C": Increase borrowing in the US, convert to Canadian dollars and invest in Canada.

Explanation:

Carry trade is a trading strategy that consists in requesting loans to a low-interest rate and use that financing to invest in assets that would revenue higher income. This strategy is being used in the currency market. The idea is for investors to be financed in one currency with a low-interest rate so later that money can be invested in other currencies with a higher interest rate in the original country where the currency is issued.