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. Eurobank

    A financial institution that accepts foreign currency denominated ...
  2. Eurocurrency

    Currency deposited by national governments or corporations in ...
  3. Eurodollar

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

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

    Purchasing and selling the same security at the same time in ...
  6. Interbank Rate

    The rate of interest charged on short-term loans made between ...
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. How The Retail Investor Profits From ...
    Trading Strategies

    How The Retail Investor Profits From ...

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

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

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center