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Carry-To-Risk Ratio como medida de Carry Trade

Author

Listed:
  • Sergio A. Díaz
  • Paula A. González
  • Claudia A. Sotz

Abstract

Wide interest rate differentials between economies may generate attractive investment opportunities. However, these operations could cause major disruptions in foreign exchange markets, such as excessive volatility in the exchange rate due to overexposure to speculative flows. The investment strategy by which an agent takes advantage of interest rate differentials of two economies is known as carry trade. This strategy assumes the absence of uncovered parity. This document describes this investment strategy as well as a measure called carry-to-risk ratio that allows identifying opportunities in which this strategy is more attractive to investors. Finally, evidence is presented for the Chilean case, its implications for the formal exchange market (FEM) and the eventual impact in the movement of the Chilean peso.

Suggested Citation

  • Sergio A. Díaz & Paula A. González & Claudia A. Sotz, 2013. "Carry-To-Risk Ratio como medida de Carry Trade," Economic Statistics Series 94, Central Bank of Chile.
    • Handle: RePEc:chb:bcchee:94
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    Cited by:

    1. José Miguel Villena & José Manuel Salinas, 2014. "Mercado Cambiario Chileno, una Comparación Internacional: 1998 a 2013," Economic Statistics Series 106, Central Bank of Chile.
    2. José Carreño & Paulo Cox, 2014. "Carry Trade y Turbulencias Cambiarias con el Peso Chileno," Working Papers Central Bank of Chile 733, Central Bank of Chile.
    3. Fredy Gamboa-Estrada, 2017. "Carry Trade Incentives and Turbulence in the Foreign Exchange Market in Colombia," Manchester School, University of Manchester, vol. 85, pages 57-78, September.

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