I would like to open a discussion about the future of credit/leverage and how the carry trade relates to this. It is well knows that lower yielding currencies have been borrowed and sold to purchase higher yielding currencies. The leveraged version of this trade was also involved in investment strategies involving credit market derivatives. In short, if the instrument you want to invest in doesn't allow the desired leverage, simply enter into a carry trade and voila, you have your leverage (brought to you be the wonders of forex)
Along with the SP500 crash this past week, we have witnessed the AUD being devalued to extreme levels (notably against the JPY and USD), I wonder whether it will be too good to pass up for some investors, incl. Hedge Funds to go long on these currencies. So, what's to stop these trades from winding up again? In fact, as other credit sources dry up, the Carry Trade could become even more popular than before.
Thoughts and comments are welcome.
Along with the SP500 crash this past week, we have witnessed the AUD being devalued to extreme levels (notably against the JPY and USD), I wonder whether it will be too good to pass up for some investors, incl. Hedge Funds to go long on these currencies. So, what's to stop these trades from winding up again? In fact, as other credit sources dry up, the Carry Trade could become even more popular than before.
Thoughts and comments are welcome.