Bayer Leverkusen and Villarreal are also interested in the right-back, who has started just one game for the Gunners this season.
But Fulham are leading the race to sign him and have held preliminary talks with his representatives.
Arsenal and Fulham have held formal negotiations yet but it is understood a loan with an obligation to buy is the most likely structure of a possible deal.
The Gunners are yet to decide if they will allow Cedric to leave, with manager Mikel Arteta previously describing his squad as “short”.
Fulham are enjoying a strong season back in the Premier League and are ninth ahead of the resumption of the domestic season. The west Londoners want to build on their good first half of the season by strengthening their squad during the January transfer window.
A new right-back is a priority for Fulham, who also tracking Roma’s Rick Karsdorp, who has fallen out of favour under Jose Mourinho.
But Cedric is currently Fulham’s preferred target, with their manager Marco Silva the driving force behind the interest.
Cedric made 26 appearances for Arsenal last season but his minutes have been limited this season by Ben White moving to right-back.
That means Arteta has three right-backs to pick from, with Takehiro Tomiyasu also an option there. Arsenal also have high hopes for 18-year-old Brooke Norton-Cuffy, who is currently on loan at Rotherham.
Cedric has faced competition for his place at Arsenal ever since joining in January 2020 and has always been happy to fight for his place.