Carry trade basics | Money, banking and central banks | Finance & Capital Markets | Khan Academy

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The mechanics of the carry trade. Created by Sal Khan.
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Finance and capital markets on Khan Academy: This tutorial walks through how China's undervaluing of its currency impacts trade and prices (which also fuels cheap borrowing for the U.S.).
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[@gerrard7359]

How here in august 2024 bcz of BOJ 👋

[@roguecivilian6958]

The year is 2024 and this could be important….

[@thembamahlaba3679]

Great call there.

[@unbekanntergooglenutzer1156]

Good call

[@daopeter]

Japan just exploded the stock market with this unwinding of this trade .

[@CooperBanks80]

This is still the best explanation of this out there I think.

[@jared-wheat-net]

This is one of the simplest explanations of economics :)

[@treystrades1899]

M-e-s-s-a-g-e_m-e_o-n @ (+1)-(2-2-4)-(5-4-4)-(-9-8-1-7) W-h-a-t-s-a-p-p

[@2leet2cheet]

Good video...Its interesting to see how this situation has now played out for Japan. Now that many major economies are now also following a zero interest rate policy there is no further downward pressure on the YEN.

[@gap46s]

Great explanation. Thank you.

[@treystrades1899]

M-e-s-s-a-g-e_m-e_o-n @ (+1)-(2-2-4)-(5-4-4)-(-9-8-1-7) W-h-a-t-s-a-p-p

[@saiforos7928]

Relevant

[@adamkhalid9193]

agreed

[@420hassam]

sal plz post some videos on insulin manufacture....both synthetic....and in body.....and some other vids abt gene technology

[@vinothkumar411]

initially A = 2B, as you said now lets consider B appreciate and A = 1.5B. at 5% interest rate a person shall make 7.5Bs by investing in countryB. 7.5B = 5A. after paying 1% interest in country A, the person will still make a profit 4A. then how this can collapse?

[@kevinfleischer2049]

Collapse by Inflation/depreciation of Currency B. If in Country B i.e. a political revolution happens, a putsch, a natural desaster etc. and the currency gets cheaper, you will loose money because it gets "expensive" to convert money back.

[@mehmetaliismailogullari]

@@kevinfleischer2049 But according to what is explained here, you get %4 interest income. Also because of the value of money B increases, you make more profit than money A. This system does not collapse, it feeds itself actually. (İf interest rates remain constant)

[@PhilipK100]

Any chance you, Kahn, could do a video and show the world how Useless the Euro is? Particuarly for the likes of Portugal, Italy, Greece and Spain. Thanks

[@SalsaTiger83]

@sonnybrown applying hate to economic problems usually is kind of counter-productive.....

[@2leet2cheet]

@2leet2cheet Obviously with the exception of the BOJ saying they are going to intervene. 0,0

[@AnishPatelR]

People watching this video in 2024

[@mattlm64]

The catch is that this trade tends to fall when stocks fall so it doesn't give much diversification and is risky.

[@sonnybrown4758]

@SalsaTiger83 I hate being ripped off. Most people do. Most people apply that to their personal economics. Most people succeed in finding cheaper prices as a result. Most people win because of this hate. Most people don't know they're being ripped off by the fed. Most people would be in outrage if they knew. So yes, I'd say applying hate to economics is pretty much a necessity to progress. Markets aren't all butterflies and dandy lions.

[@SalsaTiger83]

@PhilipK100 useless? He explained in a few videos how China and US are basically playing pingpong with smaller currencies like the yen.... Suisse is being strangled by too strong a currency that they have no control over. WIth the Euro the PIGS state had/have the chance to hitchhike the positive effects of stronger economies like Germany and France. And now, because of the Euro, they get a lot more help than most people feel they should be getting. They suffer from debt, not from the Euro.

[@ThePeterDislikeShow]

It can also break down if B defaults.

[@andis9076]

The whole thing must be stable for this to work. BOJ seems to forgot about this when they raise their interest rate, got wake up call and say never do it again.

[@jinnaikousaka963]

Unless B is the United States.

[@88roro11]

@Dasmaster1 print it? what the fed does and then "loans it out" to all there big banker friends at stupid low intrest rates

[@sydneyvo7586]

This might be a really stupid question but how is he paying 1A in interest when 1% of 5 is 0.05?

[@shamoman7467]

Its 1% of 100A which is 1A

[@sebastianjudith2836]

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[@nickylove7768]

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[@Mentorites123]

excellent explanation

[@partsish]

Hi Sal, I have watched all your financial video's and was really hoping to find out what is the mechanism or the entity in the market that actually controls the price changes. I get that prices change based on real time information in the marked and supply and demand etc... but there has to be and actual system in place or entity that interprets that information and physically changes the market prices. I would really appreciate it if you could shed some light on this for me. Regards.

[@justindiraddo9553]

Wdym it’s supply and demand

[@TFBx]

43567th.

[@matthewhiggins2015]

Confused as I am entirely new to this. Do I have to borrow currency from somewhere or can I just buy it and crack on? Every video is saying I need to borrow money and I don't understand how that can feasibly work when there's millions of traders worldwide. Are they all borrowing?! Literally could not be any more confused right now

[@yasssgawwwd5643]

This is carry trade which is a way of making money… so not sure why a person would buy and crack on without investing when making money is the whole point. What specifically confuses you about this?

[@shadowkid4090]

The borrowing is for the leverage. You can just exchange but then you have less to work with.

[@88roro11]

@Dasmaster1 true but... thats how american rocks

[@sonnybrown4758]

@ExquisiteDoom I was being somewhat facetious, but asking a serious question. The Fed's actions are laughable at this point. Laughable if it weren't so seriously unfunny that is. I don't understand how anyone can believe in Keynesianism or central banking anymore.

[@profribasmat217]

Or, perhaps the currency trap known as the peso problem shows up, and the currency you have invested in totally collapses.... So, you make a little money for a while, then get destroyed... Who's risk are you hedging is always the question you should ask yourself... As usual in a khan academy lecture on anything, the simple parts he gets right, but misses the deeper part of the picture.

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