This paper examines the crash risk of currencies for funding-constrained speculators, focusing on the currency carry trade. The authors argue that carry trades are subject to crash risk, meaning that exchange rate movements between high-interest-rate and low-interest-rate currencies are negatively skewed. They find that this negative skewness is due to the sudden unwinding of carry trades, which tends to occur during periods of decreased risk appetite and funding liquidity. Funding liquidity measures predict exchange rate movements, and controlling for liquidity helps explain the uncovered interest-rate puzzle. Carry-trade losses reduce future crash risk but increase the price of crash risk. The authors also document excess co-movement among currencies with similar interest rates. Their findings are consistent with a model where carry traders face funding liquidity constraints. The paper uses time-series data on eight major currencies relative to the U.S. dollar to analyze the skewness of exchange rate movements conditional on interest rate differentials, providing evidence that currency crashes are often the result of endogenous unwinding of carry trade activity caused by liquidity spirals.This paper examines the crash risk of currencies for funding-constrained speculators, focusing on the currency carry trade. The authors argue that carry trades are subject to crash risk, meaning that exchange rate movements between high-interest-rate and low-interest-rate currencies are negatively skewed. They find that this negative skewness is due to the sudden unwinding of carry trades, which tends to occur during periods of decreased risk appetite and funding liquidity. Funding liquidity measures predict exchange rate movements, and controlling for liquidity helps explain the uncovered interest-rate puzzle. Carry-trade losses reduce future crash risk but increase the price of crash risk. The authors also document excess co-movement among currencies with similar interest rates. Their findings are consistent with a model where carry traders face funding liquidity constraints. The paper uses time-series data on eight major currencies relative to the U.S. dollar to analyze the skewness of exchange rate movements conditional on interest rate differentials, providing evidence that currency crashes are often the result of endogenous unwinding of carry trade activity caused by liquidity spirals.