An investment position of buying a higher yielding currency with the capital of a lower yielding currency to gain an interest rate differential.
When currency speculators borrow in one country’s currency that have a low interest rate to reinvest in currencies and assets in countries that have a higher rate of return. Many experts believe that some of the global liquidity is due to the carry trade in yen, which has close to a zero interest rate cost.
Investment position involving the borrowing of funds or investments at a relatively low interest rate and the simultaneous purchase of an offsetting position earning a higher yield.