The emerging market carry trade gives opportunity to the investors to boost the profit by benefiting both from the differences of interest rate and appreciation of emerging market currencies

The emerging market carry trade gives opportunity to the investors to boost the profit by benefiting both from the differences of interest rate and appreciation of emerging market currencies. However, the investors engaged in interest rate arbitrage were only earning from the difference in interest rates without having to worry about movements in exchange rates.

When another situation occurs, the investor will earn an extra profit when changing INR back into EUR and the spot exchange rates INR/EUR strengthens from INR 60.4672/EUR to INR 56/EUR. This situation is unusual. Because the aim of the emerging market carry trade is earning a high return on the appreciation of the INR towards the EUR. But the carry trade is focused on earning the profit on interest rate differences between the 2 currencies.

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The Japanese Yen was the platform for gaining cheap credit and exchanging the Yen into USD or EUR, which is then invested at better interest rates. However, when the appreciation of yen in terms of a dollar is constant, decreasing interest rates in Euro and U.S made yen less popular as a funding currency and started a new trend, which is dollar and euro carry trade. But the currencies USD and EUR provide a cheap credit which are converted into currencies of emerging markets like India and etc. So the investors offer more favourable interest rates for investments.

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