Outward Arbitrage

Outward Arbitrage

An example of outward arbitrage will see, say, a US bank take domestic US dollar deposits (or the proceeds of US commercial paper issuance) and place the dollars initially with their offshore branches and then onlend them as offshore (Eurodollar) dollar bonds or loans to offshore corporate customers. This assumes they can earn a spread between the cost of those deposits (nominal rates, deposit insurance costs plus regulatory reserves) and the return on the loans. The act of borrowing domestically and lending offshore will over time typically erode the arbitrage opportunity.

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