Reverse carry

The expansion of the crisis from credit to foreign exchange has made even clearer the dangers of some types of speculation. In particular, the currency carry trade has been shown up most unhealthy. The practice –borrowing short in cheap hard currencies like the yen and investing in high-yield currencies like emerging markets – works a treat as long as times are good. Speculators don’t just benefit from the interest rate spread; they can also enjoy a capital gain as the assets they herd into rise...