Interest arbitrage refers to transactions in two or more financial centers in order to make an immediate profit by exploiting differences in interest rates.
Interest rates
vary
between countries based on
their
economic
health, which creates an
opportunity
for
investors.
By purchasing
a
foreign currency and
depositing it abroad, investors can effectively capitalize on the difference in interest rates in some cases. While these
bets are no longer as popular as they used to be, they are still widely used in the financial markets. For example, performing a forex swap involving simultaneously buying a foreign currency value spot and selling it forward, and then investing the purchased currency.