Outward Arbitrage

AAA

DEFINITION of 'Outward Arbitrage'

A form of arbitrage involving the rearrangement of a bank's cash by taking its local currency and depositing it into eurobanks. The interest rate will be higher in the interbank market, which will enable the bank to earn more on the interest it receives for the use of its cash.

INVESTOPEDIA EXPLAINS 'Outward Arbitrage'

Outward arbitrage works because it allows the bank to lend for more abroad then it could in the local market. For example, assume an American bank goes to the interbank market to lend at the higher eurodollar rate. Money will be shifted from an American bank's branch within the U.S. to a branch located outside of the U.S. The bank will earn revenues on the spread between the two interest rates. The larger the spread, the more will be made.

RELATED TERMS
  1. Eurocurrency

    Currency deposited by national governments or corporations in ...
  2. Arbitrage

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

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

    Purchasing and selling the same security at the same time in ...
  5. Eurobank

    A financial institution that accepts foreign currency denominated ...
  6. Inward Arbitrage

    A form of arbitrage involving rearranging a bank's cash by borrowing ...
RELATED FAQS
  1. What is arbitrage?

    Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. ... Read Full Answer >>
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. Options & Futures

    Put-Call Parity And Arbitrage Opportunity

    Look at trades that are profitable when the value of corresponding puts and calls diverge.
  3. Trading Strategies

    How To Arbitrage Precious Metals

    Here are the fine points, trading tips, suitable securities, and examples for precious metal arbitrage trading.
  4. Brokers

    Arbitrage Opportunities in Spread Betting

    While the opportunities are few and far between, investors may use arbitrage to take advantage of price differences in financial spread betting.
  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. 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.
  8. Trading Strategies

    How Risky Is A Short Sale?

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  9. 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.
  10. Trading Strategies

    You'd Better Know Your High-Frequency Trading Terminology

    The upsurge of investor interest in high-frequency trading (HFT) caused by Michael Lewis’ book “Flash Boys: A Wall Street Revolt” makes it important for industry professionals to come up to speed ...

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center