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Similar patterns are not obvious in the interest rate, currency, or equity swap markets.
In the foreign-exchange version of the carry trade, an investor receives an income by borrowing a low interest rate currency and owning a higher-yielding one.
Profits can also be made if the high interest rate currency strengthens relative to the low interest rate currency.
When demand for the higher interest rate currency increases, so does its exchange rate, which could turn a trade against a retail investor.
One longstanding approach to investing in currencies is known as a "carry trade": when an investor borrows money in a low interest rate currency and invests in a high interest rate currency, while trying to catch the difference between the rates as a profit.
Money supply measures have been surging in the past six months: M1 is up 25.2% at an annual rate, currency outstanding is up 15.4%, checking account balances are up 74.2%, and M2 is up 15.9%.
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The market-beta differential between high and low interest rate currencies is higher conditional on bad market returns, when the market price of risk is also high, than it is conditional on good market returns.
Basic, in that high-interest rate currencies have a tendency to strengthen relative to low-interest rate currencies, and vice versa.
Now it is really a second-rate currency".
But now investors have a low-rate currency that seems to be on a downward trend.
In some ways, that policy has served the country well: while Asian currencies collapsed during the financial crisis that began three years ago, China's fixed-rate currency, the yuan, remained steady and the economy chugged along largely unscathed.
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