Research question:
The main research question: "How does the carry trade strategy work?" is focused on a basic explanation of the carry trade strategy. This question is answered in chapter four including the risk and profitability of carry trades.
The sub-question is: "What is the theoretical background?" This question is focused in chapter two, chapter three and the beginning of chapter four. Chapter seven summarizes this paper and gives the answer if someone should invest money by using this strategy.
Table of Contents
List of Appendices
List of Figures
List of Tables
List of Formulas
List of Abbreviations
1 Problem outline and significance
1.1 Purpose and Motivation
1.2 Research question
1.2 Methodology
1.3 Disposition
1.4 Terminology
2 Foreign Exchange Markets
2.1 Characteristics of the Foreign Exchange Market
2.2 Efficient Market Hypotheses
3 International Parity Relationships
3.1 Parities
3.2 Interest Rate Parity
3.3 Purchasing Power Parity
3.4 Unbiased Forward Rate
3.5 Fisher Effect
3.6 International Fisher Effect
4 Carry Trade Strategy
4.1 Forward Premium Puzzle
4.2 Explanation of the Carry Trade Strategy
4.3 Risk and Profitability of the Carry Trade Strategy
5 Data set and explanation of the case study
5.1 Assumptions
5.2 Foreign Exchange Rate
5.3 Money Market Rate
5.4 Spread Sheet for Carry Trade Strategy and its Results
6 Fundamental law of Active Management
6.1 Active Return
6.2 Active Risk
6.3 Information Ratio
7 Conclusion and critical acclaim
Bibliography
Appendix
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