carry trade

Definitions

Economics

  • The practice of borrowing in the currency of a country where interest rates are low and lending the proceeds in the currency of a country where interest rates are higher, in hopes of profiting from the difference. Success depends on exchange rates remaining relatively constant. Also known as uncovered interest arbitrage.

Forex

  • (written as Carry Trade)
    A currency trading strategy in which the trader borrows an amount of a currency with a given interest rate, and lends out this amount in a different currency with a higher interest rate. A carry trade generates profit if the interest revenue from lending the second currency exceeds the financing cost of the loan.
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