Intermarket context
The idea
A carry idea seeks a yield difference, but the exchange rate can move against it by more than the income earned. Country risk, capital controls, liquidity and policy changes can reshape returns. Risk-on and risk-off are shorthand descriptions of a group of observations, not universal laws.
A worked example
A position earning a small positive daily carry can still lose several months of carry in one adverse session.
Try it yourself
Separate an example position's financing return from its price return and stress both independently.
A mistake to avoid
Calling a high yield a free return without considering depreciation and funding risk.