In 2019, many investors borrowed money in countries such as Germany, where interest rates were low, and
Question:
In 2019, many investors borrowed money in countries such as Germany, where interest rates were low, and invested the money in emerging markets, where rates were higher. This is called a “carry trade.” The risk of such a trade is that the emerging market’s currency may depreciate sharply. Could you eliminate this risk by entering into a forward exchange contract and still make money?
Step by Step Answer:
No Forward rates are priced t...View the full answer
Fundamentals Of Corporate Finance
ISBN: 9781264101566
11th Edition
Authors: Richard A. Brealey, Stewart C. Myers, Alan J. Marcus
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A forward exchange contract (FEC) is an agreement between two parties to effect a currency transaction, usually involving a currency pair not readily accessible on forex markets. FECs are traded OTC with customizable terms and conditions, many times referencing currencies that are illiquid, blocked, or inconvertibl
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