Funding Currency

DEFINITION of 'Funding Currency'

The currency being exchanged in a currency carry trade. A funding currency typically has a low interest rate. Investors borrow the funding currency and take short positions in currencies with higher interest rates.

BREAKING DOWN 'Funding Currency'

The Japanese yen has historically been popular as a funding currency among forex traders because of its low interest rate. For example, a trader will borrow Japanese yen and purchase a currency with a higher interest rate, such as the Swiss franc.

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RELATED FAQS
  1. How often do exchange rates fluctuate?

    Exchange rates float freely against one another, which means they are in constant fluctuation. Currency valuations are determined ... Read Answer >>
  2. Why do forex traders use a currency converter?

    All currencies are quoted in pairs - one country's currency against another country's currency. A currency converter is used ... Read Answer >>
  3. Why isn't the EUR/USD currency pair quoted as USD/EUR?

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  4. What is the value of one pip and why are they different between currency pairs?

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