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. 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. Interbank Rate

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

    The financial system and trading of currencies among banks and ...
  6. Inward Arbitrage

    A form of arbitrage involving rearranging a bank's cash by borrowing ...
Related Articles
  1. Trading The Odds With Arbitrage
    Options & Futures

    Trading The Odds With Arbitrage

  2. Put-Call Parity And Arbitrage Opportunity
    Options & Futures

    Put-Call Parity And Arbitrage Opportunity

  3. What is arbitrage?
    Forex

    What is arbitrage?

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

    Credit Card Arbitrage: Free Money Or ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center