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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    Exchange rates float freely against one another, which means they are in constant fluctuation. Currency valuations are determined ... Read Answer >>
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