Definition: The carry trade is when currency traders borrow in the currency of a country with a low interest rate to reinvest in currencies and assets in countries that pay a higher rate of return. Many experts believe that some of the global liquidity before the 2008 financial crisis was due to the carry trade in yen, which had close to a zero interest rate cost. The yen carry trade with the dollar ended in 2008 when the Federal Reserve dropped the Fed funds rate to near zero.
However, it is still going strong with currencies such as the Brazilian real, Australian dollar, Turkish lira, and other higher-yielding currencies. For example, many forex traders borrow near-zero yen to buy Australian dollars which have a 4.5% return. (Source: Tony Richardson, RichardsonHeritage Group, for info on yen carry trade with foreign currencies)