should check interest rates and a possibility of their change permanently as even market expectations of a rate hike or decline affect a currency rate. Taking this example a step further, lets say that, instead of the stock market, the investor converted the borrowed amount of 10,000 and placed it in an exotic currency (EC) deposit offering you an interest rate of 6 percent. Open a position for several months, and you will earn. The primary reason has been due to a down-cycle in commodities, as Australia, a resource-rich nation, is a net exporter of coal, natural gas, and uranium. Carry trades are only appropriate for deep-pocketed entities because of two major risks: the risk of a sharp decline in the price of the invested assets and the implicit exchange risk when the funding currency differs from the borrowers domestic currency. Global commodities have fallen in price since mid-2014, though have begun to rebound since their early-2016 bottom. The more important focus is to determine how rates are likely to change in the future, which is a function of future growth and inflation prospects. However, you should remember the features of the carry trading.
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Among major currency pairs, AUD/JPY and AUD/CHF have been the more popular carry trade options with AUD being the high yield currency and JPY and CHF being low yield currencies. The fact that a trend lasted for 8 years showed that the pair is safe enough to use the carry trade strategy. For those short the AUD/CHF, interest is paid daily, just as someone shorting a stock would pay the dividend, if applicable. Net return in this case would be 9 percent, if the markets cooperate. Thus, calm, low-volatility environments are generally prime for carry trade opportunities.