Australian Investment Blog

Explaining the "carry trade" and the risks it brings to bank share prices down the track.

"A strategy in which an investor sells a certain product with a relatively low interest rate and uses the funds to purchase a different product yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used".

So let's convert this to simple English looking at the current market and especially the Australian banks:

Traders can currently access cash in the US and Europe at extremely low interest rates - official rates are 0.25% and 0.15% respectively.

The Australian Banks are yielding around 5% plus franking.