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Definition

The movement of cash from a low interest country or area to a high interest country. Emerging economies typically have considerably higher interest rates than first world countries. This offers the opportunity to borrow at low rates in one country and then lend at much higher rates elsewhere. South Africa has had considerable investments as a result of its relatively high interest rates when compared to Europe, America or Japan. Against this, South Africa has considerably higher risk, especially political risk, which tends to deter investors. Money which comes in on the carry trade tends to be short-term and can leave as quickly as it arrived. This makes the rand vulnerable to sudden outflows.

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