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Strategies & Market Trends : Asia Forum
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To: Laptev who wrote (3666)5/17/1998 11:38:00 PM
From: Zeev Hed  Read Replies (1) of 9980
 
Laptev, arbitrage is taking place and in a massive way, it is called the "Yen Carry Trade". Arbitrageur sell short the yen denominated bonds and buying long the dollar denominated bonds. It is a highly leveraged trade too, and as long as the dollar is strong relative to the yen it is making oodles of money (not only they get the 4% differential interest on less than 10% margins, namely about 40% interest rate, but they gain on the relative currency increase of the dollar vs the Yen). However, from time to time, the BOJ enters the market (last time to the tune of $20 Billions) and cause a sharp sell off in the dollar (it went from about 133 to 127), and those that use "full leverage" find themselves almost wiped out.

Zeev
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