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What is Positive Carry? A Comprehensive Legal Overview
Definition & Meaning
Positive carry refers to a financial strategy where the cost of financing an investment is lower than the income generated from that investment. In simpler terms, it involves holding two offsetting positions: one position generates cash flow that exceeds the financial obligations of the other. This strategy is beneficial because it allows investors to earn a profit from the difference between the income and costs associated with their investments. The opposite of positive carry is known as negative carry, where costs exceed returns.
Table of content
Legal Use & context
In legal practice, positive carry can be relevant in areas such as finance law, investment law, and real estate transactions. It often plays a role in structuring deals, where parties may seek to optimize their cash flow through various financial instruments. Users can manage some aspects of these transactions themselves by utilizing legal templates available through platforms like US Legal Forms, which are drafted by experienced attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: An investor purchases a bond that pays an interest rate of five percent while borrowing funds at a rate of three percent. The positive carry in this situation is two percent, which represents the profit earned from the investment.
Example 2: A real estate investor may finance a property purchase with a loan at four percent interest while collecting rental income at six percent. This results in a positive carry of two percent, allowing the investor to benefit from the cash flow.
Comparison with related terms
Term
Definition
Key Difference
Negative Carry
The situation where the cost of financing exceeds the income generated.
Opposite of positive carry; results in a loss rather than a profit.
Cash Flow
The total amount of money being transferred into and out of a business.
Cash flow is a broader term that includes all income and expenses, while positive carry specifically refers to the profit from financing costs.
Common misunderstandings
What to do if this term applies to you
If you believe positive carry applies to your financial situation, consider reviewing your investment strategies. You may want to explore legal templates from US Legal Forms to help structure your investments effectively. If your situation is complex or involves significant financial decisions, consulting with a legal professional is advisable to ensure you make informed choices.
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