Answer to Question #116586 in Finance for Sam Hooper

Question

According to basic economic theory, it should not be possible to make profits by borrowing in a low yielding currency and investing in a higher yielding currency (the carry trade), as any extra interest gained is eliminated by a depreciation of the higher yielding currency. Critically review the literature concerning this anomaly and use this to evaluate reasons for the carry trade's continuing existence.

Answer 1

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