Asked by Evelyn Madero on Sep 24, 2024
Verified
In the case where interest rates are higher in Canada,which of the following is an example of a "carry trade"
A) Increase borrowing in the US,convert to Canadian dollars and invest in Canada
B) Increase borrowing in the US and invest in the US
C) Increase borrowing in Canada,convert to dollars and invest in the US
D) Increase borrowing in Canada and invest in Canada
Carry Trade
A financial strategy that involves borrowing at a low interest rate and investing in an asset that provides a higher rate of return.
Interest Rates
Interest rates represent the cost of borrowing money or the return on invested funds, expressed as a percentage of the principal.
Borrowing
The act of receiving something with the intention of returning it or its equivalent, often referring to money with interest.
- Comprehend the principles of carry trade and its implications on international investment strategies.
Verified Answer
MI
Michie Ignacio5 days ago
Final Answer :
A
Explanation :
A carry trade involves borrowing money in a country with a low-interest rate, converting it to the currency of a country with a higher interest rate, and investing it in that country to earn a higher return. In this case, borrowing in the US (with low-interest rates) and converting it to Canadian dollars (with high-interest rates) and then investing in Canada would be an example of a carry trade. Therefore, option A is the correct choice.
Learning Objectives
- Comprehend the principles of carry trade and its implications on international investment strategies.