Why would someone set up a negative carry trade?
I am assuming that negative carry trade is the reverse of the e positive carry trade aka you would borrow high and invest low. But I dnt see the benefits of it?
So let’s assume that xyz offers 5% and abc offers 2%. So if asked to set up a positive carry trade, we would borrow in abc and invest in xyz. If they say negative carry trade, do we just borrow in xyz and invest in abc?
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I think you mean neg cost of carry.
Can you tell me which part of curriculum is this from?
it was in one of the mocks and it was negative carry trade, not even cost of carry. I got very confused by this.
If that s the case, mostly they support UIRP instead of forward rate bias. = Borrow in HY currency and expect depreciation of the same. Don’t think this will be testable tho.
Stupidity?