Borrowing at a low interest rate in one currency to lend at a higher interest rate in another currency is sometimes called a “carry trade.” An article in the New York Times describes an investment strategy of this type: “A speculative carry trade in which investors borrowed euros at low interest rates to buy the higher-yielding Hungarian currency.”

a. What does the article mean by the “higher-yielding Hungarian currency”?

b. Why does the article describe the strategy as speculative? Wouldn’t investors be certain to make a profit by following this strategy? Briefly explain.

c. The article notes that the Hungarian currency, the forint, was “buoyed” by this strategy. Why would investors engaging in this carry trade cause an increase in the exchange value of the forint?