It stands for owner arbitrage; a type of one-way arbitrage which capitalizes on violations to the law of one price (LOP) for lending rate (bid). As the name implies, in owner arbitrage (OA), the owner of funds lends own funds in the market in order to obtain the highest rate of return. Such owner-arbitrageurs usually consider the benefits of lending own funds (endowment of funds) at the market bid rate in the currency denominating the funds against the benefits of converting these funds to a different currency at the spot exchange rate and extending a loan denominated in that currency (at the market bid rate). However, the latter position may involve an exchange rate risk (arising from currency conversion) which can be mitigated at maturity date of the loan by taking a position in a forward contract (i.e., buying, on a forward basis, the same amount in the original currency).
Finance
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