Carry trade is an investment consisting of borrowing at a low interest rate to invest in an asset providing a higher rate of return, typically for less than a year.
Carry trades often involve borrowing in hard currency (such as dollars, euros,
british pounds, or yen) to invest in
high-risk,
high-interest notes issued by third
world countries.
As these investments are typically not sustainable for the issuing country, most such carry trades are cashed out (re-converted into dollars) within a year - during which net returns of 10% to 50% can often be earned.
A disastrous carry trade developed in Argentina during the Macri presidency (2015-
19), as both local and foreign investors took advantage of notes with annual yields averaging over 80%. The
trick was re-converting the notes into dollars before the inevitable devaluations, in which the investment could lose 20% in a
day.