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What is aquisition?

Updated: 9/11/2023
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14y ago

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the act of acquiring

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What is a carry trade?

The "Carry Trade" is the application of cheap borroweded funds, utilised to buy a higher yielding asset, thus, through time, the strategy has a "Positive Carry". An example would be the borrowing of cheap Japanese Yen at an interest rate of 1% and investing those Yen into a higher yielding currency, such as Australian Dollars with an interest rate at 8%. Through time, assuming your asset retains its value, you will receive a net return on 7% for every dollar borrowed. This was the classic trade in the 2000s into the Liquidity Crisis (related, but different to the Credit Crisis) in the second half of 2008. The inherent problem with the strategy is that it assumes that the asset invested in will retain or gain value relative to the currency borrowed. In July of 2008, 1 Australian Dollar bought just shy of 105 Yen, so the strategy would require borrowing 105 Yen for the aquisition of A$1. By October, your A$1 was only worth 56 Yen and while still high yielding, you had just over half of the value to repay your loan.