Cash and Carry trades deliver results

In a recent FX report, HSBC touted the merits of "cash and carry" currency trading, in which forex traders hold currencies that yield the highest interest rates, without concerning themselves too much with relative changes in exchange rates. Most practitioners of fundamental analysis would probably be skeptical of such a strategy, as the theory of interest rate parity dictates that the value of a nation's currency and its benchmark interest rate move in opposite directions, in order to guarantee investors on both sides a similar return. However, HSBC uses the Brazilian Real to exemplify the appreciation of a nation's currency that often follows an increase in interest rates. The Business Online Reports:

The Brazilian real has appreciated around 18% against the dollar this year and an investor would additionally have gained 15% in carry. This overall 30% return could have been further sweetened through near-free financing by borrowing in yen and Swiss Franc.

Read More: Cash and carry – this year’s most lucrative currency trading bet