Inward Arbitrage

AAA

DEFINITION of 'Inward Arbitrage'

A form of arbitrage involving rearranging a bank's cash by borrowing from the interbank market, and re-depositing the borrowed money locally at a higher interest rate. The bank will make money on the spread between the interest rate on the local currency, and the interest rate on the borrowed currency.

INVESTOPEDIA EXPLAINS 'Inward Arbitrage'

Inward arbitrage works because it allows the bank to borrow at a cheaper rate than it could in the local currency market. For example, assume an American bank goes to the Interbank market to borrow at the lower eurodollar rate, and then deposits those eurodollars at a bank within the US. The larger the spread, the more money that can be made.

RELATED TERMS
  1. Market Arbitrage

    Purchasing and selling the same security at the same time in ...
  2. Spread

    1. The difference between the bid and the ask price of a security ...
  3. Interbank Rate

    The rate of interest charged on short-term loans made between ...
  4. Interbank Market

    The financial system and trading of currencies among banks and ...
  5. Outward Arbitrage

    A form of arbitrage involving the rearrangement of a bank's cash ...
  6. Eurobank

    A financial institution that accepts foreign currency denominated ...
Related Articles
  1. Trading The Odds With Arbitrage
    Options & Futures

    Trading The Odds With Arbitrage

  2. Top 7 Questions About Currency Trading ...
    Forex Education

    Top 7 Questions About Currency Trading ...

  3. What is arbitrage?
    Forex

    What is arbitrage?

  4. Credit Card Arbitrage: Free Money Or ...
    Credit & Loans

    Credit Card Arbitrage: Free Money Or ...

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center