1.4 Profitabilities of carry trade strategies (6 marks)
Identify the periods of significant profitable carry trade opportunities that existed during your sample
and calculate the carry trade profits that would have resulted. Carry trade profits can be represented as
a dollar (or other currency) terms, assuming that investors invest a certain amount of money at the
beginning of the sample period.
Document the market conditions during these periods (e.g., measures of system stability – exchange
rate volatility, stock market volatility, etc.). Check newspaper reports (using Factiva via library’s web
access) to see whether actual carry trades during the identified periods have been reported.
In addition, identify the periods when carry trade strategies deliver significant negative returns. To what
extent market conditions differ from the period when carry trade strategies deliver positive returns?
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