Which of the following is a feature of the 'Carry Trade' strategy in foreign-exchange markets?
A. Only hedging all exchange-rate risk
B. Borrowing in a high-interest-rate currency and investing in a low-interest-rate currency
C. Only trading on the basis of purchasing-power parity
D. Borrowing in a low-interest-rate currency and investing in a high-interest-rate currency
Answer: Option D
Solution (By JKSSB Mock Tests)
A carry trade involves borrowing funds in a currency with a low interest rate and investing them in a currency with a higher interest rate, thereby earning the interest differential while remaining exposed to exchange-rate risk.
Explanation:
M1 is referred to as narrow money and consists of currency with the public, demand deposits with banks, and other deposits with RBI. M3 is broad money.
Explanation:
In the specific-factors (Ricardo-Viner) model, each industry has a factor that is specific to it (immobile) while at least one factor (usually labour) is mobile between industries, generating clear distributional predictions of trade.
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