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. Eurodollar

    U.S.-dollar denominated deposits at foreign banks or foreign ...
  2. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  3. Market Arbitrage

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

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

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

    The financial system and trading of currencies among banks and ...
Related Articles
  1. Options & Futures

    Trading The Odds With Arbitrage

    Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage.
  2. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  3. Forex

    What is arbitrage?

    Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. This is considered riskless profit for the investor/trader. Here is an ...
  4. Mutual Funds & ETFs

    How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.
  5. Credit & Loans

    Credit Card Arbitrage: Free Money Or Dangerous Gamble?

    Credit card arbitrage is a way to make some money, but it's a major gamble with devastating risks.
  6. Trading Strategies

    Strategies And Secrets Of High Frequency Trading (HFT) Firms

    Secrecy, strategy and speed are the words that best define high-frequency trading (HFT) firms.
  7. Investing

    What is the difference between arbitrage and speculation?

    Arbitrage and speculation are very different strategies. Arbitrage involves the simultaneous buying and selling of an asset in order to profit from small differences in price. Often, arbitrageurs ...
  8. Trading Strategies

    How The Retail Investor Profits From High Frequency Trading

    Stock markets and high-frequency trading seem inseparable. As an individual investor, try and make the best of the mess, starting now.
  9. Trading Strategies

    How Risky Is A Short Sale?

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  10. Forex Strategies

    Covered Interest Arbitrage

    Covered interest arbitrage is a trading strategy in which an investor uses a forward currency contract to hedge against exchange rate risk.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center