Funding Currency

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  3. Currency

    A generally accepted form of money, including coins and paper ...
  4. Currency Carry Trade

    A strategy in which an investor sells a certain currency with ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. Currency Risk

    A form of risk that arises from the change in price of one currency ...
Related Articles
  1. The Credit Crisis And The Carry Trade
    Forex Education

    The Credit Crisis And The Carry Trade

  2. The
    Forex Education

    The "Turn To The Carry" Trade

  3. Profiting From Carry Trade Candidates
    Forex Education

    Profiting From Carry Trade Candidates

  4. Top 7 Questions About Currency Trading ...
    Forex Education

    Top 7 Questions About Currency Trading ...

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center