Simply by just memorization I understand that a carry trade is valuable only if stable and upward sloping curves. There was another post related to problem 7 in section 24 as to why the carry trade is not valuable when long rates rise and short rates rise. S2000 said why borrow at 2 and invest at 5 when you can at 1 and 7 later.
With exhibit 8 and 9 on page 139 the carry trade is also discussed with GBP and MXN currency. THey mention that the intermarket trade is valuable if she has confidence that the MXN rates will not rise (yield is flat for MXN) and flat for GBP. Here what is this rate referring to? Short end or long end? And what if the MXN rate falls? This makes it seem as if it is valuable still if it falls.
Is a carry trade only valuable if stable? Or can it be valuable if rates drop?
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