I am finding it hard to explain why one is entitled to the overnight carry rate with FX trades. I found I couldn't easily find it on the internet either so I came here.
So what entitles you to the carry rate? Its not like your money is in a bond. I get that its based off of the fed funds rate, but why do you even receive that. That is the price for banks to loan to each other and what prompts the bank to be so accommodating to you and give you this rate? It's not like any of your money sitting in the bank gets a rate even close to that.
I just can't see where the rate is actually coming from and why it is there in the first place. Can someone please help me out here?
So what entitles you to the carry rate? Its not like your money is in a bond. I get that its based off of the fed funds rate, but why do you even receive that. That is the price for banks to loan to each other and what prompts the bank to be so accommodating to you and give you this rate? It's not like any of your money sitting in the bank gets a rate even close to that.
I just can't see where the rate is actually coming from and why it is there in the first place. Can someone please help me out here?