Carry trade is a strategy in which an investor borrows or sells a financial instrument with low interest rate and uses the proceeds to lend or purchase a financial instrument with high interest rates.
For example, an investor can borrow money in another country’s currency where the interest rates are very low, and lend the money in another country where the interest rates are high.
This video explains the concept of carry trade with the help of an example.
Source: Khan Academy
Signup for our email updates and get "Risk Management Essentials" free ebook