Question Summary: A currency carry trade involves investors looking to exploit interest rate differentials between two currencies and it is thought to be one of the factors that contribute to the empirical violations of the uncovered interest parity (UIP). The pair of funding and investment currencies I chose is USD and JPY, and their money market interest rates (e.g., monthly rates, , and ∗). Use the data from 01/11/2011-01/11/2021 (MM/DD/YYYY)
This is a Group Work, and the work is separated into 4 parts as 1.1; 1.2; 1.3; 1.4. All the parts requirements are shown in the Attachment. But the only thing you need to do is the 1.4.
Your work:
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?
0 comments