Outward Arbitrage is a type of arbitrage that multinational, American-based banks engage in to take advantage of differences in interest rates between the United States and other countries. Generally, this practice involves buying assets from one country with its currency and then selling it for another currency at a higher price. This allows the bank to capitalize on any difference in exchange rates and make money off the transaction. The most common form of outward arbitrage is when banks purchase foreign government bonds denominated in U.S dollars or euros from countries where interest rates are lower than what they would be if purchased domestically; thus allowing them to capture an additional return on their investment as well as benefit from exchange rate movements over time.Although it is almost always large banks that engage in outward arbitrage due to their access to larger amounts of capital, smaller non-bank depositors and nonbank borrowers can also take part albeit using much less capital than those big players do since they don’t have access to such huge sums like major financial institutions do . Additionally , these small investors are usually more exposed risk wise compared with large banking entities given that they typically lack resources necessary for hedging against potential losses which could arise out moving forward with such transactions .Overall , outward arbitration has become increasingly popular among both institutional investors looking for ways increase returns while minimizing risks through diversification across different asset classes ; but also amongst individual traders who seek opportunities within international markets by utilizing relatively low levels of capital . It should however be noted though , investing via this method requires extensive knowledge about global financial markets along with careful management & monitoring so as not incur significant losses resulting from unfavorable market developments.
