We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Funding Currency?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Funding currency is any national currency that currently carries a very low interest rate and can be used to buy a wide range of assets that are capable of generating additional returns. Using this approach allows the investor to take advantage of any type of spread that may exist between that currency and the purchased asset. When managed to best effect, the investor is able to enjoy benefits that would not have been possible if a currency carrying a higher rate of interest had been used for the purchase activity.

Use of a funding currency to purchase different types of investments is very common. One strategy calls for using a currency with a low interest rate as part of a foreign exchange or forex investment. With this scenario, the investor uses the currency with the low rate of interest to purchase currency carrying a higher rate of interest. Assuming that the rates of exchange move in the direction projected by that investor, he or she stands to generate a considerable return using this method.

Other types of assets can also be purchased using a funding currency. The approach can be used to acquire various stocks, bonds, and commodities. As the value of those investments increase, this only serves to increase the rate of return that is secured by making the purchases in a currency with a low interest rate.

One of the more appealing characteristics of using funding currency to buy investments is that the strategy carries a relatively low potential for failure. The main potential risk has to do with an unanticipated appreciation of that currency, which would tend to minimize the spread involved and decrease the benefits to the investor. For this reason, choosing the right currency for the funding effort is extremely important, not only in terms of the current rate of interest associated with that funding currency, but also what is likely to happen to the rates in the future.

During most of the first decade of the 21st century, the Japanese yen was often considered the funding currency of choice, owing to the consistently low interest rates associated with the currency. As the worldwide economy entered into a period of recession, the yen began to appreciate in comparison to other national currencies, which in turn made it less appealing for use as funding currency. The shift in funding currency during that recession served to remind many investors that even though identifying a currency with a low interest rate and using it to purchase investments is a viable plan, there will always be some degree of risk involved, making it important to always project future movements before executing a deal.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.