tag:blogger.com,1999:blog-7905515.post4683462588189946418..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: China Doesn't Like Carry TradeEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-7905515.post-15331329745005117922009-11-18T20:17:39.689-06:002009-11-18T20:17:39.689-06:00MS: there is no borrow. Think about the other sid...MS: there is no borrow. Think about the other side of the transaction. I sell you $100 / buy X CNY. You buy $100 from me / sell X CNY.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-18656372654950941432009-11-17T11:53:23.417-06:002009-11-17T11:53:23.417-06:00When you borrow USD in America, you aren't bor...When you borrow USD in America, you aren't borrowing the currency vis-a-vis the yuan. You only affect the USD/yuan rate when you exchange USD for yuan to invest in China.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-37038307715793346182009-11-17T11:29:26.352-06:002009-11-17T11:29:26.352-06:00I'm not sure whether you understood my questio...I'm not sure whether you understood my question. I understand the rationale of the carry trade but I don't understand why it puts pressure on the funding currency.<br /><br />My thought was: I demand 100 USD from the market(borrow USD) and then I supply 100 USD to the market (selling USD). <br /><br />But I just figured that I should look at it as a kind of short selling, no?MSnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-8626986226945549182009-11-17T09:46:53.394-06:002009-11-17T09:46:53.394-06:00Borrow USD from US bank, pay US interest rate. Ex...Borrow USD from US bank, pay US interest rate. Exchange USD for yuan/renminbi (selling USD!), invest in yuan/renminbi bonds.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-64618426760933543862009-11-17T09:35:52.872-06:002009-11-17T09:35:52.872-06:00Eric, they say that carry trades put preassure on ...Eric, they say that carry trades put preassure on the currency with the lower yield because foreign investors eg in the case of the US first borrow USD and then sell USD.<br /><br />I never understood this. I borrow (-100 USD) and I sell (+100 USD). Which part of the channel am I missing?<br /><br />Thanks,MSnoreply@blogger.com