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That makes the trade that involves borrowing cheaply in yen and investing elsewhere look interesting — but volatility makes it perilous.
Borrowing cheaply is a better financial bet than repatriating cash earned overseas and paying tax on it.
Funds doing "carry trades", borrowing cheaply in dollars and buying riskier assets abroad, had thrived.In this section The price is a blight Where will the boot land next?
So Bear's balance sheet remained larded with extremely risky assets that the firm had leveraged to the hilt by borrowing cheaply in the overnight financing markets.
But a quarter of Bankia's income from lending (as opposed to fees) is from the "carry trade": borrowing cheaply from the European Central Bank to buy higher-yielding Spanish government debt.
In effect the country was operating like a giant hedge fund, borrowing cheaply to invest at a higher return.After peaking at £291 billion in 2007, foreign earnings dropped sharply as the financial crisis struck, falling to £161 billion by 2010.
Similar(42)
They include being able to borrow cheaply.
These governments can borrow cheaply for decades at a time.
Their implicit government guarantees allow them to borrow cheaply.
The government continues to be able to borrow cheaply.
Banks capture these by being able to borrow cheaply, because of their implicit state guarantee.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com