Accounting numbers are prevalent in financial reporting, business valuation, and investment management. They’re so frequently used that the practitioners rarely asked pragmatic questions such as: are they useful, do they account for some meaningful risks, can they be used to price assets.
A recent article  attempts to bring some answers to these questions,
This paper is a treatise on handling accounting numbers in building factor models. Those numbers include book value, investment, return on equity (ROE), and other profitability measures that appear in standard models, but often from data mining without a clear explanation of why they indicate investment risk. The numbers are generated by accounting principles that deal with risk, providing an explanation but also a critique of how the numbers enter extant models.
The authors investigated the usefulness of book value, investment, and return on equity (ROE) numbers. They concluded,
…the expected return is given by the expected future earnings yield on current price, for which the current earnings-to-price, E/P, is a predictor. However, it is an imperfect predictor, for current earnings are typically disturbed by accounting principles that convey the risk to expected earnings that discounts their pricing. By recognizing this accounting and combining it with the current earnings-to-price, the paper produces a factor that explains stock returns well relative to existing models. That is complemented with an investment factor based on complementary accounting in the balance sheet under double entry. Accounting measures in standard models, like book value, investment, and ROE enter, but in a different way —in a way that conveys risk and return under accounting principles.
In brief, accounting numbers are useful, but only under some circumstances. This result is consistent with our experience in working with credit-risk models. We have observed that not all accounting numbers are useful in modeling probabilities of default. Their usefulness depends on the type of business and many other factors. Moreover, they must be used in conjunction with other types of market indicators such as macroeconomic, volatility, technical, etc.
The research results imply that we can incorporate accounting numbers into the development of investment strategies. But as in the case of credit-risk models, they must be used in conjunction with other types of market indicators.
Last and not least, by the same token, there is a growing number of people in the financial service industry who promote alternative data and many of them sell their data services at the same time. We ask ourselves again the same question: is the alternative data really useful. What do you think?
 S. Penman, XJ. Zhang, Accounting for Asset Pricing Factors, 2021, https://ssrn.com/abstract=3881177
Originally Published Here: Are Accounting Numbers Useful?
Leverage represents the use of borrowed capital to fund activities. For investors, it involves using loans or other borrowed funds to invest in securities. These borrowed funds come with some charges, usually in the form of interest payments. For investors, the returns they get from their investments must exceed these payments. Leveraged investing can be significantly beneficial. However, there are also some risks associated with it.
What is Leveraged Investing?
Leveraged investing is a process through which investors use borrowed funds for investing. It involves borrowing a large amount of money upfront and using it to finance their activities. By doing so, investors can scale their portfolios significantly without having to wait for the money to become available for investing. With leveraged investing, investors can remove any obstacles associated with limited capital.
For investors, leveraged investing can be significantly beneficial. It helps them scale their operations. It, in turn, helps increase the dividends or capital gains that investors receive. However, the charges that investors must pay on the leverage may lower their returns. Therefore, it is crucial for their returns to exceed the costs of leveraged investing.
What are the Risks of Leveraged Investing?
While leveraged investing can significantly increase investors’ returns, it can also amplify their risks. These risks may relate to the borrowed capital or their operations. Some of the primary risks of leveraged investing for investors include the following.
Subpar portfolio performance
As mentioned, investors must ensure that their returns are higher than their borrowing costs. One of the primary risks that investors face with leveraged investing is subpar portfolio performance. Investors may invest in stocks or securities that do not perform well in the market. However, their borrowing costs always stay the same. Therefore, they may end up making a loss on the transaction.
Loss of collateral
In some loan transactions, investors may have to provide the lender with collateral. In case investors can't repay the borrowed amount or face delay with interest payments, they may end up losing this collateral. If investors choose to provide their investments as collateral, they may have to sell these investments prematurely if the time comes. Hence, they may make a loss on that as well.
Leveraged investing can decrease the returns that investors get. It is because they also have to pay interest on the borrowed capital. However, if investors suffer a loss instead of gains, it will amplify their losses. Not only do they have to pay their interest payments, but they also have to bear investment losses. If investors use leveraged investing to scale their operations, the losses can be even bigger.
Interest rate risks
Investors may also have to suffer interest rate risks with the leverage they use for investing. In case of increasing interest rates, investors will have to pay more. It can also affect their cash flows. On top of that, it may make them susceptible to falling short on their interest payments and losing their collateral. Overall, interest rate risks can be a significant risk of leveraged investing.
The use of leverage in investing can provide investors with significant benefits. Not only can it help them increase their returns but also scale their operations. However, leveraged investing can come with some risks. Some of the primary risks associated with it include subpar portfolio performance, loss of collateral, amplification of losses, and interest rate risks.
Originally Published Here: Risks of Leveraged Investing
A loan is a transaction between two parties, a lender and a borrower. The lender is the party offering a resource in exchange for an incentive. This transaction may also include collateral, which provides the lender with higher security. Usually, loan transactions involve paying a monetary amount. However, investors also have the option to dive into securities lending.
What is Securities Lending?
As the name implies, securities lending is the process of lending securities. Like other loan transactions, this transaction also involves two parties, the lender and the borrower. The lender is a party that owns stocks, bonds, or other securities. The lender temporarily transfers these securities to a borrower. Securities lending is usually a secured transaction. Therefore, the borrower must also provide collateral, usually in the form of cash or other securities.
Like other transactions, securities lending also involves an agreement that dictates the transaction's terms. For example, it may include details about the transaction's length, the collateral provided, any fees involved, etc. Usually, securities lending also requires a monthly lending fee, which acts as an incentive for the lender. Once the transaction ends, the borrower has to return the loaned securities.
How does Securities Lending work?
Securities lending starts from a borrower requesting some securities from a lender. Both parties negotiate the contract and its details. As mentioned, they put these terms in the form of a contract. Once they complete the initial requisites, they can exchange the securities and the collateral. Subsequently, the lender will transfer the title and ownership of the given securities to the borrower.
During the time the borrower holds the said securities, they have to pay a monthly fee. This fee includes a combination of the loan fee and interest fee for the loan. The borrower also has to pass any accrued interest or dividends on the securities to the lender. This process continues during the total loan period. Once the agreement ends, the borrower must return the securities to the lender.
What is the importance of Securities Lending?
Securities lending can be of high significance to many investors. Most primarily, it facilitates short selling in the market. With this, investors can loan securities and sell them and bet on the security prices falling in the market. Therefore, short-sellers can buy securities at a low price and sell them at a high point. If things go as planned, investors can make high profits. Therefore, securities lending allows investors to benefit from security trading without having to buy them.
Additionally, securities lending can help allow investors to buy on margin. This process can also be beneficial to the market as it encourages trading. However, it isn't of significance to investors only. Lenders can also benefit from securities trading. This benefit usually comes in the form of the fee that the borrower provides in exchange for the securities.
Nonetheless, the success that investors can get with this strategy can differ based on several factors. On top of that, they also have to account for the risks involved with it. The primary risk investors face consists of insolvency risk. If they fail to pay the fee or return the securities, they will lose their collateral. Similarly, investors can also make losses while short selling, which can impact them adversely.
Securities lending is a transaction in which a lender loans securities to a borrower. In exchange, the borrower pays a fee. Securities lending allows investors to short sell the securities to benefit significantly. However, this process also comes with some risks that they must consider.
Article Source Here: What is Securities Lending
Convertible bonds are complex securities that are part debt, part equity. The main feature of a convertible bond is the conversion that allows the bondholder to convert debt to equity. In addition, there can be many other “exotic” features such as callable, puttable, forced conversion, soft call, contingent conversion, etc.
Given their complexities, convertible bonds’ pricing is often very involved. A convertible bond is usually priced by using a lattice (binomial or trinomial tree) model or the Partial Differential Equation (PDE) approach. Another method is the Monte-Carlo simulation . This method is less popular than the lattice or PDE approaches, but it has an advantage in that it can account for path-dependent features such as contingent conversion or 20/30 soft calls.
The pricing of a convertible bond under the Monte-Carlo approach starts with simulating the underlying price which is assumed to follow a Geometrical Brownian Motion. This is a common assumption in practice to model stock prices. The time to expiration is divided into equal time intervals; and in each time interval, the stock price is simulated using an exact scheme. This procedure generates price paths and we repeat it many times.
Since the conversion option can be exercised at any time during a given period, the valuation of a convertible bond is similar to that of an American option. Using dynamic programming principles, the value of a convertible bond can be determined recursively in a similar manner as in the tree or partial differential equation approaches.
Briefly, for each price path, the convertible bond’s continuation value is approximated using Least-Squares regression as suggested in the paper of Longstaff and Schwartz  for the valuation of the American option. The main steps involved in valuing a convertible bond using Monte Carlo simulation are as follows,
This pricing method is more computationally involved than the lattice or PDE approaches. However, it offers greater flexibilities regarding the implementation of more complex, exotic features, especially path-dependent ones. Using this method, the precision of the pricing is approximately 0.5% of the convertible bond’s value.
 See for example M. Ammann, A. Kind, C. Wilde, Simulation-based pricing of convertible bonds, Journal of Empirical Finance 15 (2008) 310–331
 F. Longstaff and E. Schwartz, Valuing American options by simulation: A simple least-squares approach, Review of Financial Studies, Spring 2001, pp. 113–147.
 Other basis functions can also be used.
Article Source Here: Pricing Convertible Bonds Using Monte-Carlo Simulations
Futures contracts are agreements that allow investors to deal in specific commodity assets or securities. With these contracts, investors can fix their future prices for a particular time in the future. Futures contracts allow investors to hedge against various risks associated with price changes. With these contracts, investors undertake an obligation to conduct the transaction in the future.
Futures contracts are primarily helpful for hedging purposes. However, investors can also invest in these contracts through various markets. These can provide the diversity necessary for investors when managing their portfolios. Like other investments, futures contracts can also be highly beneficial to investors. These contracts produce returns in various forms, one of which includes roll yields.
What is Roll Yield?
Roll yield is a term often associated with futures markets. It represents the yield or returns investors can generate in the futures market by rolling a short-term contract into a long-term one. Due to the difference in the price of these contracts, investors can make a profit. This profit constitutes the roll yield for investors. Effectively, it allows investors to benefit from the convergence of futures prices toward the spot price.
The roll yield arises due to the difference between the holding period return for futures contracts varying from the spot price return during the same period. Once futures contracts expire, investors have to pay compensation or settlement. However, they can avoid this by closing their position or rolling over their futures contracts. This way, they can sell contracts close to maturity and buy similar contracts with longer maturity periods.
How does the Roll Yield work?
Roll yield is a type of profit that investors can make from future markets, among various others. This profit occurs due to the price difference between futures contracts with varying maturity or expiration dates. Roll yields can either be positive or negative based on whether the market is in contango or backwardation. Regardless, investors can profit from both circumstances.
Roll yields come from investors' obligations due to future contracts. When investors acquire these contracts, they must buy or sell securities in the future. However, they also have the option to roll over their position before the delivery date. Due to this, investors can close their position before expiration by selling their futures contracts with short expiration dates. Instead, they invest in similar contracts with longer expiration dates.
How to calculate the Roll Yield?
Investors can calculate the roll yield by using the formula for roll yield. As mentioned, the roll yield can either be positive or negative. In the case of contango in the futures market, the futures prices of longer-dated contracts are higher than those of short-dated contracts. For backwardation, the opposite applies. The roll yield in contango is negative, while for backwardation, it is positive.
Investors can use the following roll yield formula to calculate the returns they can get from rolling over.
Roll Yield = Price of short-term contract - Price of long-term contract / Price of short-term contract
The futures market, like other investments, provides a decent opportunity for an investor to diversify their portfolios. Investors can also benefit from roll yields. Roll yield represents the returns investors can get from rolling over their short-term futures contracts for long-term ones. The price difference between both contracts represents the roll yield that investors can achieve.
Article Source Here: What is Roll Yield?
Hedging is a technique that investors use to mitigate any specific risks that they face with investments. Usually, it includes investing in derivatives to counterbalance the adverse impacts of any risks. There are many types of hedge instruments that investors may use for that purpose. For example, investors can use options, futures, swaps, etc., to mitigate their investment risks.
With hedging, investors take an opposite position to their current one. This way, they don't have to suffer in case their investments perform adversely. Due to the number of options available to investors, there are several techniques that they can use during this process. These may include static or dynamic hedging. Both of these are different in various regards.
What is Static Hedging?
As mentioned, investors use a hedge to protect against any risks facing a specific investment. However, once investors hedge against those risks, some variables may change. A static hedge is a type of hedge that does not require investors to rebalance it actively. It means that investors do not take steps to adjust these hedges when some characteristics of their securities change.
Static hedges have a finite life period. While investors may need to adjust these hedges when their investments expire or mature, they do not do it as often as dynamic hedges. Usually, this rebalancing occurs after long intervals. One example of a static hedge is a future in which investors can hedge a position against an investment. Through these derivatives, investors can hedge against price or foreign exchange risks.
What is a Dynamic Hedge?
A dynamic hedge is a type of hedge that requires investors to rebalance actively. It means that as the factors concerning their portfolios alter, investors will need to adjust their position. Dynamic hedges may require more regular rebalancing compared to static hedges. In some cases, dynamic hedges may be the only option for investors as static hedges may not cover the risks.
Dynamic hedges look at several factors when considering rebalancing. The most common of these is the price of an investor's portfolio. However, other factors may also require attention, such as volatility. One example of a dynamic hedge is options. Investors can use these to hedge against several risks. However, these require regular rebalancing to be effective.
What is the difference between Static and Dynamic Hedging?
As mentioned above, the primary difference between both hedges is the need for investors to rebalance them. Static hedges do not require regular rebalancing. In some cases, these may not be effective for longer periods. Similarly, investors will need to rebalance eventually. However, this rebalancing occurs after a long period of time.
Dynamic hedges, on the other hand, take a more active approach towards hedging. It requires investors to monitor their investments and adjust their hedge instruments accordingly. Despite being more active, it does not imply that dynamic hedges are more effective. During high volatility periods, they may not be as effective in hedging either.
Hedging is a process through which investors can mitigate the risks associated with their investments. There are several approaches to hedging, which may be more applicable to specific situations. Static hedges do not require investors to rebalance their hedge instruments regularly. However, with dynamic hedges, the process occurs more actively.
Article Source Here: Static Vs Dynamic Hedging
Options market efficiency is a topic of interest not only to academics but also to practitioners. There is a body of research focusing on market inefficiency. For example, we recently highlighted a research paper dealing with sector ETFs’ implied volatilities and correlations. The research result implies that the options market is not efficient, as one can earn extra returns by using trading signals generated from the implied correlation premium.
There is, however, an opposite school of thought that promotes the idea that the options market is efficient and excess returns cannot be earned. A recent example is Reference  in which the authors calculated the index options implied volatilities and used them to generate trading signals,
We test the Index options market efficiency by means of a statistical arbitrage strategy, i.e. pairs trading. Using data on five Stock Indexes of the Euro Area, we first identify any potential option mispricing based on deviations from the long-run relationship linking their implied volatilities. Then, we evaluate the profitability of a simple pair trading strategy on the mispriced options.
The article went on to conclude that the index options market is efficient,
Using data on one-month maturity ATM call options written on five European Indexes, over the 2007-2019 period, we find that arbitrage opportunities, despite frequent, are short-lived and mostly lead to non-significant profits, in both the self-financing strategy (in which the quantities traded in the two stocks are such that no initial capital investment is required) and in the beta-arbitrage (in which the quantities traded are a function of the regression slope estimates). Market forces are thus able to quickly identify and reabsorb potential mispricing, further confirmed by the fact that the average trade closes within 4 days. Consistently with previous works on European index option market (Capelle Blancard and Chaudhury, 2001, Mittnik and Rieken, 2000, Cavallo and Mammola, 2000, and Brunetti and Torricelli, 2005), our final conclusion is in favor of index option market efficiency.
We respect the authors’ research effort and conclusion, and we will consider their results in our trading strategy development process. However, we’d like to point out that the PnL drivers of an index options pair are the constituents’ not only implied volatilities but also realized volatilities. The authors did not take into account the realized volatilities explicitly when generating trading signals and constructing the option positions. The realized volatilities were taken into account implicitly as they manifested themselves through the moneyness of options,
Investigating the main drivers of options’ pair trading, we find that the realized returns are mostly driven by the moneyness of both the options involved. Consistently with expectations, the strategy returns are on average higher whenever the option sold is OTM and/or the option on which a long position is taken is ITM, while on average lower when the sold option is ITM and/or the option bought is OTM.
If the authors took into account the realized volatilities in their strategy development process, the results might have been different.
Notwithstanding the efficient market debate, constructing options positions to take advantage of the mispricings (if any) is not a trivial process.
 M. Brunetti, R. De Luca, Pairs trading in the index options market, efmaefm.org, 2020
Originally Published Here: Are Index Options Markets Efficient?
Having a diversified portfolio of investment is crucial for any investor. Traditionally, investors have divided their portfolios into equity and debt investments. With the vast number of options available nowadays, however, the same does not apply. Investors have various options when it comes to building a diversified portfolio. One such option is investing in managed futures funds. Before that, however, it is crucial to understand what managed futures are.
What are Managed Futures?
Managed futures are a type of alternative investment strategy through which investors can achieve a diversified portfolio. Instead of investing in the traditional markets, the managed futures strategy focuses on investing in the futures contracts market. Managed futures provide investors with many advantages, including diversification, liquidity, lower risks, higher rewards, etc.
With managed futures, investors can include assets from various asset classes in their portfolios. Therefore, they involve investing in both equity and debt markets, among others. Managed futures have some relationship to stock and bond markets. However, this relationship is not as strong. Despite that, managed futures provide investors with a diversified portfolio.
What is a Managed Futures Fund?
Managed futures funds, also known as managed futures accounts, are similar to other investment funds. With these funds, investors can pool their funds for a manager to handle. The managers, usually Commodity Trading Advisors, make decisions on their clients’ behalf. However, these do not include investing in traditional markets. As the name suggests, managed futures funds focus on investing in managed futures.
Like other funds, managed futures funds may take a long or short position in the market. However, these usually include investments in the commodities or futures markets. Managed futures funds managers may take one of the various approaches towards managing these funds. However, most of these approaches focus on achieving high liquidity investments.
With managed futures funds, diversification is also a focus area. Managers include several future instruments in these funds for that purpose. These may consist of stock, fixed-income or debt, commodity, foreign currency futures, etc. Usually, managers will include their market approach in their trading program that they share with their clients.
How do Managed Futures Funds work?
Managed futures funds work similarly to other funds. These are investment vehicles that trade in derivatives or futures. These may include several instruments, such as futures contracts, futures options, stock options, swaps, etc. These funds may take a long or short position, or both, in the assets they trade. These funds also don't face any restriction in using leverage.
As mentioned, managed futures funds have managers. Usually, these are professionals known as commodity trading advisors (CTA). However, it may also include commodity pool operators (CPO). Managers in managed futures funds are responsible for managing clients’ investments in futures or derivatives. Usually, they aim to reduce portfolio volatility while also focusing on liquidity.
What are the advantages of Managed Futures Funds?
Managed futures funds can provide investors with several advantages. These are leveraged investments, which can increase returns while also reducing risks associated with portfolios. Managed futures funds can also be beneficial in achieving portfolio diversification. These funds can also help in outperforming traditional investments in some circumstances. Overall, they are less risky and provide better rewards.
Managed futures represent an alternative investment strategy for achieving a diversified portfolio. They do so by investing in futures or derivatives instead of traditional assets or securities. Managed futures funds allow investors to invest in managed futures. These can provide investors with better returns while also offering a diversified portfolio.
Originally Published Here: What is a Managed Futures Fund?
Who are Commodity Trading Advisors?
Commodity trading advisors are individuals or institutions that provide financial advice to investors related to future options, futures contracts, etc. Usually, commodity training advisors are professionals who go through a registration process to become an advisor. Primarily, these advisors are responsible for providing trading advice or services related to commodity swaps or options and futures contracts.
Commodity trading advisors are responsible for handling managed future accounts. For investors, getting into most of the investments mentioned above may be challenging. It is because futures or foreign exchange contracts involve a significant amount of leverage, making them more complex. Therefore, they may need the help of professionals to help them with it. Commodity trading advisors are the perfect choice for that purpose.
What do Commodity Trading Advisors do?
Primarily, commodity trading advisors are responsible for managing investors' assets through managed futures funds. As mentioned, these assets include future contracts, future options, foreign exchange contracts, etc. For these assets, commodity trading advisors are responsible for setting an investment strategy. This strategy will depend on investors’ goals and objectives.
As a part of their asset management responsibility, commodity trading advisors need to perform various analyses. They will also employ an investment technique to use for their assets. There are several approaches to doing so. For example, they may use technical, quantitative, or fundamental investment approaches. Based on which method they use, these advisors will adjust their working techniques.
What do Commodity Trading Advisors need to become registered?
As mentioned, commodity trading advisors are registered individuals or institutions. Their registration comes from the relevant body that overlooks their work. In the United States, this includes the Commodity Futures Trading Commission (CFTC). They may also need to register or become a member of other regulatory bodies based on the jurisdiction in which they operate. For the US, it involves being a member of the National Future Association (NFA).
Usually, there are several steps involved in obtaining a commodity trading advisor registration. It includes taking a multi-part exam and passing it. Individuals taking the test must also provide an exam fee. Once they pass the exam, they can get a registration of two years. Once they do so, they must also pay a membership fee and complete other relevant requirements.
All individuals that offer commodity trading advisor services must meet these requirements. For institutions, the criteria may differ. For example, in some jurisdictions, the principles of commodity trading advisory firms must have a CTA registration. On top of that, all the employees linked with dealing with clients must also have a CTA registration.
What is the difference between Commodity Trading Advisors and Money Managers?
Both commodity trading advisors and money managers perform similar duties. They are responsible for managing clients’ assets and providing them personalized advice. However, their registration and designation differ. Money managers are usually chartered financial analysts (CFA). They are responsible for making investment decisions focused on balancing clients’ portfolios between equity and bonds.
Money managers usually focus on helping clients achieve their financial goals. For that, they exchange assets on a client's behalf. As mentioned, these assets consist of equity and debt instruments. Commodity trading advisors, however, focus on providing advice related to futures and commodities. Similar to money managers, commodity trading advisors also help clients with achieving specific financial goals.
Commodity trading advisors are individuals or institutions who have a registration. These advisors provide clients with advice about future contracts, options, foreign exchange contracts, etc. They are primarily responsible for managing clients' assets through managed futures funds. Usually, they go through a registration process to get the commodity trading advisor designation.
Originally Published Here: Who Are Commodity Trading Advisors?
Forex trading includes buying or selling currencies to profit from the differences in exchange rates. Due to the widespread availability of markets, forex trading has become a popular choice among many investors. There are several strategies that investors may use to profit in the forex market. One such strategy is the carry trade.
What is the Carry Trade in Forex?
The carry trade in forex is a strategy that investors can use to increase their returns. With this strategy, investors buy high-yield currencies against low-yield currencies. In other words, it involves selling currencies that have a low-interest rate and using that to acquire currencies with higher interest rates. This strategy is straightforward and prevalent among many forex traders.
With carry trade, investors pay low interest on the currencies that they sell or borrow. However, they get higher interest on currencies that have high-interest rates. In essence, investors can profit from the yield difference between both currencies. Usually, they get the interest differential between their currencies for every day they hold them.
How does the Carry Trade in Forex work?
The carry trade in forex works by exploiting the interest difference between two currencies. With this strategy, investors identify currencies that provide a low yield. Once they do so, they sell or borrow them. At the same time, they identify currencies that have higher yields against the low-yield currencies they sold. These are the currencies that they buy and keep. In practice, investors must identify currency pairs that illustrate these features.
Investors can earn a profit from the broker every day they hold both the low- and high-yield currencies. In essence, the investor pays a low-interest rate on the currencies they sell. However, they also receive high yields on currencies they buy. The difference between both yields represents the profits that investors make from carry trading.
For example, an investor purchases the Euro, which presents a 4% interest rate. On the other hand, they borrow the US dollar, which has a 3% interest rate. For each day that the investor holds the trade in the market, they will receive 1% interest from the broker. This interest represents the difference between both of these currencies.
What are the advantages and disadvantages of the Carry Trade?
Carry trade can be highly beneficial for investors. Primarily, it presents investors with two gains that they can get from forex trading. The first comes from the trading gains they receive from the difference in exchange rates. The second comes from the interest rate difference between the two currencies. It also allows investors to benefit from using leverage.
However, carry trade can have some drawbacks as well. The primary disadvantage of carry trading comes from the volatility associated with currencies. Therefore, it can significantly increase the risks that investors take using such a strategy. On top of that, while it allows investors to profit from using leverage, it can also be highly volatile.
Forex trading, like other assets, can be a viable investment option for investors. A strategy that they can use during this process is carry trading. A carry trade in forex is when investors identify two currencies with high and low-interest rates. By selling the low-yield currencies and buying high-yield ones, they can benefit from the interest rate differences.
Post Source Here: Carry Trade in Forex