Outward Arbitrage


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.

BREAKING DOWN '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.

  1. Eurocurrency

    Currency deposited by national governments or corporations in ...
  2. Interbank Rate

    The rate of interest charged on short-term loans made between ...
  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. Eurobank

    A financial institution that accepts foreign currency denominated ...
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