Currency carry trade, Currency carry trade. The C$/$ spot

Currency carry trade

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Reference no: EM132005917

1. Currency carry trade

involves buying a currency that has a low rate of interest and funding the purchase by borrowing in a currency with high rates of interest without any hedging.

involves buying a currency that has a high rate of interest and funding the purchase by borrowing in a currency with low rates of interest, with forward hedging (i.e., using currency forward contracts to hedge currency movement risk).

involves buying a currency that has a high rate of interest and funding the purchase by borrowing in a currency with low rates of interest with forward hedging, without any hedging.

involves buying a currency that has a low rate of interest and funding the purchase by borrowing in a currency with high rates of interest, with forward hedging (i.e., using currency forward contracts to hedge currency movement risk).

2. The C$/$ spot exchange rate is C$1.10/$ and the 90 day forward exchange rate is C$1.15/$. The forward premium (discount) is (Note: C$ stands for Canadian dollars, and the premium(discount) is "annualized" premium(discount).)

the dollar trading at an 18.18% premium to the Canadian dollar for delivery in 90 days.

the dollar trading at a 17.39% discount to the Canadian dollar for delivery in 90 days.

the dollar trading at an 4.55% premium to the Canadian dollar for delivery in 90 days.

the dollar trading at a 4.35% discount to the Canadian dollar for delivery in 90 days.

Reference no: EM132005917

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