The 23-year-old is also a transfer target for Chelsea, but could be on his way to the Etihad following revelations of his desire to join City.
He admitted that it would be hard to turn down an offer from the Manchester-based club should they make a move for his services, while adding that he would love to play in the Premier League.
“Logically, it is hard to say no when City wants you and you can play there,” he said.
“England is my dream. I do not hide it. Whether I’ll be happy there, only the good Lord knows.”
Both the Blues along with the Gunners have now been alerted over speculation of a move from their rivals, hinting that the trio of clubs could spark a bidding war in the summer.
Xhaka also added that he doesn’t care about the money, but is instead keen on a new challenge should he decide to move to England.
“For me money is not important,” he added.
“It’s about being a big challenge for me as a footballer.”
The Switzerland international has already featured 24 times in all competitions this term, so far managing to score three goals while providing another one assist.