Subprime woes infect forex

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Recent turmoil in the credit markets caused by US subprime mortgage woes has spread to the foreign exchange market, with abrupt adjustments in the values of currencies indicating that some investors have been unwinding carry trade positions over the past few months.

The carry trade involves borrowing in the currency of a country with low interest rates (for instance, Japan) and investing in higher-yielding currencies (such as Australia or New Zealand). Investors profit from the interest rate

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