Do you know about - Word of the Day: Carry Trade (Extended Edition!)
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Word of the Day: Carry Trade (Extended Edition!) Video Clips. Duration : 3.53 Mins.We had a good read. For the benefit of yourself. Be sure to read to the end. I want you to get good knowledge from Today Mortgage Rates . Follow us @ twitter.com twitter.com Word of the day is back! This is our special segment where Lauren breaks down a financial term or concept for our very smart viewer but maybe not the financial expert. Today, in light of LTRO 2.0 as we call it, the word is quite appropriately "Carry Trade." Now, the Longer-term Refinancing Operation (LTRO) is what some call quantitate easy for the eurozone, but instead of the ECB monetizing sovereign debt outright, it is lending the money to banks so that they can do it over the yield curve. Now, the official definition that we would like to use for Carry Trade is as follows: A transaction where someone borrows at a low interest rate and invests in an asset that yields a higher rate, making money on the spread. One commonly see's carry trades in connection with currencies. For example, many remember the Yen carry trade, that began its last major reversal in the summer of 2007, with noticeable results for anyone who had taken out a loan in yen and invested in higher yielding assets denominated in some other currency (mortgage holders in eastern europe for example). In situations like that, where someone engages in a carry trade using one currency in exchange for another, there is a great amount of risk involved because if something causes rapid currency appreciation (in this scenario, if the yen were to start appreciating) then the borrower could quickly find himself underwater riding on a negative real interest spread. However, in the ...
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