what is carry trade?

Answer 1

carry trade: investors borrow low-yielding currencies and lend high-yielding ones.
It tends to correlate with global financial and exchange-rate stability, and retracts in use during global liquidity shortages.

For example, a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Assuming the bond pays 4.5% and the Japanese interest rate is set at 0%[1], the trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Leverage can make this type of trade very profitable. If the trader above uses a leverage factor of 10:1, then he/she can stand to make a profit of 45% (4.5% * 10). However, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Furthermore, because of the leverage, small movements in exchange rates can magnify these losses immensely unless hedged appropriately.

god.... but this carry trade is going to bring a bear market....in share market.. as japan has increased it interest rates... and yen carry trade is bringing flu in the stock market.....