Arbitrage currency

Buy US dollars and sell Japanese yen; Because the interest rate of the US dollar is higher than that of the Japanese yen, after a period of time, you will receive a spread in interest due to holding a high interest currency (in this case, the US dollar), which is called carry interest

For example, buying 100000 US dollars today,Greek AllianceSell 11.7 million Japanese yen, if the exchange rate between the US dollar and the Japanese yen is 117, and buy it back in a year, if the exchange rate remains unchanged, you will profit from it:

Assuming a 3% interest rate for the US dollar and a 0.1% interest rate for the Japanese yen, you will receive an interest income of 10X3%=13000 US dollars. You will pay 1170X0.1%=1.17 million Japanese yen interest, while 3000 US dollars=0.3X117=351000 Japanese yen. The difference in interest you receive is 3510-1.17=339300 yuan

So you made a profit of 339300 yen (2900 US dollars) by holding the high interest currency, the US dollar, for one year If the US dollar appreciates, in addition to earning interest, you also benefit from the exchange rate; Even if the US dollar depreciates, as long as the depreciation does not exceed the interest margin, you still make a profit (of course, it will be less than the profit when the exchange rate remains unchanged) So in this example, the US dollar should be called a carry rate currency!