P. 1
UN Trade and Development Report, Post-Crisis Policy Challenges 2011

UN Trade and Development Report, Post-Crisis Policy Challenges 2011

|Views: 21|Likes:
Published by Linda Louise
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

TRADE AND DEVELOPMENT REPORT, 2011
Post-crisis policy challenges in the world economy

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT GENEVA

TRADE AND DEVELOPMENT REPORT, 2011

Report by the secretariat of the United Nations Conference on Trade and Development

UNITED NATIONS New York and Geneva, 2011

Note



Symbols of United Nations documents are composed of capital letters combined wi
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

TRADE AND DEVELOPMENT REPORT, 2011
Post-crisis policy challenges in the world economy

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT GENEVA

TRADE AND DEVELOPMENT REPORT, 2011

Report by the secretariat of the United Nations Conference on Trade and Development

UNITED NATIONS New York and Geneva, 2011

Note



Symbols of United Nations documents are composed of capital letters combined wi

More info:

Published by: Linda Louise on Oct 05, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

10/22/2011

pdf

text

original

Evidence of carry-trade activity in the spot

markets is diffcult to track, since detailed data on

individual investors’ positions and on funds that
have been borrowed and deposited simply do not
exist. However, in some futures markets, such as
the one in the United States, market participants
have to report their daily positions at the end of the
trading day. This provides some indication of the net

positions of non-commercial traders (pure fnancial

traders) in currency futures markets in the United
States (chart 6.5). In the chart, since data on direct

Australian dollar-Japanese yen currency futures are
not available, both currencies are considered vis-à-vis
the United States dollar. The bars show the number
of contracts in the market, while net long positions
represent the difference between long and short posi-
tions of the respective currencies vis-à-vis the United
States dollar. Thus, a net long position in Australian
dollars has a positive value, while a net short position
has a negative value.

Overall, the data from this futures market in
the United States provide clear evidence of massive
yen-funded carry-trade activity from January 2005
to July 2007, a yen-funded carry-trade reversal as
the global crisis unfolded from September 2008 to
February 2009, and three alternating periods of net
long positions in both funding and target currencies
from November 2007 onwards. These periods of
build-up and reversal of carry-trade positions add to
the fndings presented in TDR 2008 and TDR 2009.

Additionally, since the third quarter of 2007
there have been net long positions in both funding
and target currencies and increasing use of the United
States dollar as a funding currency for carry-trade
activities. This is confrmed by investors’ expecta-
tions as refected in the so-called carry-to-risk ratio,
a popular ex-ante measure of carry-trade proftabil-
ity. This ratio refects the gains stemming from the

interest rate differential adjusted by the risk of future
exchange rate movements.2

The higher the ratio, the
higher is the ex-ante proftability of the carry-trade
strategy. Until April 2008, the expected proftability

of yen-funded carry trades was much higher than that
of United States dollar-funded carry trades, and the
carry-to-risk ratios diverged consistently (chart 6.6).

However, as the fnancial crisis unfolded and the

United States interest rate declined, the carry-to-risk
ratios converged and carry trades funded in United
States dollars were even perceived as being slightly

more proftable than yen-funded carry trades.

This switch in the funding currencies of carry
trade in futures markets shows that investors’ carry-
trade strategies in currency markets are driven mainly
by their expectations of interest rate movements. It
also suggests that the reduction of the short-term
interest rates in the United States immediately after
the beginning of the crisis was a much greater push

factor for funding short-term capital fows in the

United States than the two subsequent rounds of

quantitative easing. However, the fact that more fows

Trade and Development Report, 2011

166

Chart 6.5

net posItIons of non-CommerCIal traders on australIan dollar
and Japanese yen futures, January 2005–aprIl 2011

(Number of contracts, thousands)

Source: UNCTAD secretariat calculations, based on Bloomberg; and United States Commodity Trading Futures Commission
database.

Chart 6.6

Carry-to-rIsk ratIo, 2005–2010

(Percentage points)

Source: UNCTAD secretariat calculations, based on Bloomberg database.

- 50

0

50

- 200

- 150

- 100

100

150

200

1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4

2005

2006

2007

2008

2009

2010

2011

Japanese yen
Australian dollar

Yen-funded carry trade

Yen- and United States dollar-funded carry trade

Yen-funded
carry trade
reversal

0.00

0.05

0.10

0.15

0.20

0.25

Feb.
2005

June
2005

Dec.
2005

June
2006

Dec.
2006

June
2007

Dec.
2007

June
2008

Dec.
2008

June
2009

Dec.
2009

June
2010

Dec.
2010

Australian dollar–Japanese yen

Australian dollar–United States dollar

The Global Monetary Order and the International Trading System

167

not only originated in the United States but were

also fnanced there, rather than originating there and

being raised in Japan, have not changed the funda-
mental logic and the consequences of carry trade in
currency markets.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->