Why doesn't uncovered interest parity always hold?

UIP predicts high-yield currencies depreciate to offset the interest advantage. In practice, high-yield currencies often appreciate or stay flat due to carry flows, creating the forward premium puzzle.

What is the risk in carry trades?

Carry trade profits accrue slowly but can be wiped out instantly during risk-off events when high-yield currencies crash. The distribution of returns is highly negatively skewed.

FX Carry Trade Calculator

Calculate carry trade returns by borrowing in a low-interest-rate currency and investing in a high-interest-rate currency. Analyze interest rate differential, forward premium/discount, and breakeven exchange rate movement.

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$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate carry trade returns by borrowing in a low-interest-rate currency and investing in a high-interest-rate currency. Analyze interest rate differential, forward premium/discount, and breakeven exchange rate movement. Use the fx carry trade result to inform your calculation.

FX Carry Trade Calculator

How to Use

Frequently Asked Questions

Why doesn't uncovered interest parity always hold?

What is the risk in carry trades?