Carry Trade

Borrowing in a low-rate currency to invest in a higher-yielding one.

In a carry trade, investors borrow cheaply in a low-interest currency and invest in assets or currencies offering higher yields, pocketing the difference. It can be profitable for long stretches but unwinds violently when exchange rates move, causing sharp losses.

Investors borrowed cheaply in yen and bought higher-yielding assets in a classic carry trade.