The Yen Carry Trade

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There's panic on Wall Street and around the world recently, and it's not bad economic news or a terrible earnings report that's at fault. Instead, it's a highly leveraged yen "carry trade" that has led to billions of dollars in selling and liquidations starting in the crypto market on Sunday night.

Here's how the yen carry trade works.

1. Borrow yen at a low interest rate.
2. Convert yen to another currency, often U.S. dollars.
3. Buy assets that yield an interest rate higher than the Yen rate in (1). Ex. U.S. treasuries. 

According to the Motley Fool, if yields and exchange rates don't change, this is a brilliant trade because it is a simple arbitrage that prints money month after month.

They go on to say:  But something has changed. The interest rate on Yen debt is rising; the prior range was 0% to 0.1%, and the Bank of Japan announced a rate increase to 0.25% on Friday, bucking a decade-plus trend of essential zero rates.

Trade Makes the World Better Off

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When a firm or an individual buys a good or a service produced more cheaply abroad, living standards in both countries increase.  Nations are almost always better off when they buy and sell from one another

There are other reasons consumers and firms buy abroad that also make them better off—the product may better fit their needs than similar domestic offerings or it may not be available domestically. In any case, the foreign producer also benefits by making more sales than it could selling solely in its own market and by earning foreign exchange (currency) that can be used by itself or others in the country to purchase foreign-made products.

Trade makes the world better off.

Today in Global Small Business: E-Commerce Sales Go International

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What's affecting me, my clients, my colleagues and other global small business owners:

• The top five benefits to the Trans-Pacific Partnership agreement.
• Trans-Pacific Partnership (TPP):  Trade Booster for the World
• Enough about TPP?  Oh, how about more?
• How to build small brands up to global status.
• Foreign exchange:  what is it and why does it matter?
• Holiday [November] e-commerce sales go international.