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    Euro Currency Market

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    luxman_sharma1189
    The document provides information about the Eurocurrency market. It defines Eurocurrency as deposits held in banks outside the country that issues the currency. The market originated after WWII when US dollars were held by foreign banks. It expanded due to political factors like the Cold War, and economic factors like the US balance of payments deficit and Regulation Q. The market has no single national control. Major participants include banks, corporations, and governments. Advantages include providing liquidity and investment opportunities, while disadvantages include lack of regulation in some economies.

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    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Euro Currency Market

    Uploaded by

    luxman_sharma1189
    634 views20 pages
    The document provides information about the Eurocurrency market. It defines Eurocurrency as deposits held in banks outside the country that issues the currency. The market originated after WWII when US dollars were held by foreign banks. It expanded due to political factors like the Cold War, and economic factors like the US balance of payments deficit and Regulation Q. The market has no single national control. Major participants include banks, corporations, and governments. Advantages include providing liquidity and investment opportunities, while disadvantages include lack of regulation in some economies.

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    euro market currency is the slide of international financial management.

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    The document provides information about the Eurocurrency market. It defines Eurocurrency as deposits held in banks outside the country that issues the currency. The market originated after WWII when US dollars were held by foreign banks. It expanded due to political factors like the Cold War, and economic factors like the US balance of payments deficit and Regulation Q. The market has no single national control. Major participants include banks, corporations, and governments. Advantages include providing liquidity and investment opportunities, while disadvantages include lack of regulation in some economies.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    634 views20 pages

    Euro Currency Market

    Uploaded by

    luxman_sharma1189
    The document provides information about the Eurocurrency market. It defines Eurocurrency as deposits held in banks outside the country that issues the currency. The market originated after WWII when US dollars were held by foreign banks. It expanded due to political factors like the Cold War, and economic factors like the US balance of payments deficit and Regulation Q. The market has no single national control. Major participants include banks, corporations, and governments. Advantages include providing liquidity and investment opportunities, while disadvantages include lack of regulation in some economies.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 20

    Eurocurrency Market

    LUXMAN SHARMA (Gautam Buddha University) MBA (2011)


    1

    Table of Content
    What is Eurocurrency? Features of Eurocurrency Market Factors for the Expansion

    Functions of Euro Currency Market:


    Participants in Eurocurrency Market Advantages Disadvantages

    What is Eurocurrency?

    Eurocurrency is the term used to describe deposits residing in banks that are located outside the borders of the country that issues the currency the deposit is denominated in. For example: a deposit denominated in US dollars residing in a Japanese bank is a Eurocurrency deposit, or more specifically a Eurodollar deposit

    How it Originated? After the Second World War, the amount of U.S. dollars outside the United States increased enormously

    As a result, enormous sums of U.S. dollars were in custody of foreign banks outside the United States
    During the Cold War period, especially after the invasion of Hungary in 1956, the Soviet Union feared that its deposits in North American banks would be frozen as a retaliation

    Conti.. It decided to move some of its holdings to the Moscow Narodny Bank, a Soviet-owned bank with a British charter

    The British bank would then deposit that money in the US banks
    There would be no chance of confiscating that money, because it belonged to the British bank and not directly to the Soviets On February 28 1957, the sum of $800,000 was transferred, creating the first eurodollars
    5

    Conti..

    Gradually, as a result of the successive commercial deficits of the United States, the eurodollar market expanded worldwide
    Thus, the currencies involved in the Eurodollar market are in no way different from currencies deposited with banks in the home country It is only that Eurodollar is not under the orbit or surveillance of the monetary policy, where the currency in their home country is under the regulation of the national monetary policy

    Features of Eurocurrency Market


    1. It is an international market and it is under no national control: It has come up as the most important channel for mobilizing and deploying funds on an international scale 2. It is a short term money market 3. Eurodollar markets are the time-deposit market. The deposits here have a maturity period ranging one day to several months. Eurodollar is the short-term deposit. It is a wholesale market: It is so because Eurodollar is the currency that is dealt in only large units. Size of individual transaction is usually above $1million
    7

    4. It is highly competitive and sensible market:


    High competitive : This market is characterized as highly competitive because the market is growing and accepted internationally. Sensible : The Eurodollar market is said to be sensible because it responds faster to the changes in demand and supply of the funds and also reacts to changes in the interest rates

    Factors for the Expansion


    1. The Suez Crisis : (1957) It was a crisis whereby the sterling credit facilities were unable to reach Britain provided speed to the growth of Eurodollar Market. The British banks ultimately found a good substitute in dollars. As there was already available pool of USD held by residents outside US

    Growth of Euro-Currency Growth depositors receive better terms than they can receive onshore. Borrowers can borrow more, possibly at power rates, than they can onshore.

    10

    2. Political Factors :
    It was cold war led to growth of Eurodollar Market.
    As the communist countries had a fear that their dollars deposited in banks in the US, would be seized due to hostilities. It was then the Russian and European banks preferred to transfer their dollars with European banks

    11

    3. Balance of Payment Deficit of US :

    It means that the outflow of dollars from US increased to other nations.


    It was in 1950 that US started facing the problem of deficit, but it was in 1958 that the problem reached to the saturation point. The outflow of USD contributed as a factor for expanding Eurocurrency market

    12

    4. Regulation Q :

    Regulation Q was a United States government regulation which fixed the maximum interest payable by the banks in US and restricted the payment of interest on deposits less than 30 days. Unlike US, Eurodollar market paid interest on the deposits of less than 30 days

    13

    Other Events Britain 1957 prohibited banks from financing non-British trade. U.S. 1960s discouraged banks from lending to non-US residents.

    Oil crisis 1970s led to huge amount of dollars amassed by OPEC countries. They did not want them to be in the US because they were afraid that they would be confiscated by the US government.
    Gave opportunity to those who wanted to deposit or borrow dollars (later, other currencies, as well)
    14

    Functions of Euro Currency Market: Foreign exchange hedging Domestic intermediation International Intermediation

    15

    Participants in Eurocurrency Market

    Government International Organizations Central Banks Commercial Banks Corporations MNC Traders Individuals

    16

    Participants have contributed in the demand and supply of the fund, in the following way: Supply : Central Banks of various countries are the suppliers; they channel the fund through BIS. Increase in the Oil Revenue of the OPEC has added to the fund. MNCs and the traders place their surplus funds for the short-term gains. Demand : Government demand for these funds to meet the deficit arising due to meet the deficit arising due to the deficit in Balance of Payment and the rise in the oil prices. Commercial Banks needs extra fund for lending. Some also borrow for the better window dressing in the year-end
    17

    Advantages 1. It helped the economies to solve the liquidity problems: 2. It provided better investment opportunities. 3. Funds are also by the commercial banks of various countries for domestic credit creation and window dressing. 4. This facilitated the growth and development of various countries like Brazil, South Korea, Taiwan, and Mexico etc 5. Its International acceptance has helped in the international trade to expand and accelerated the process of globalization
    18

    Disadvantages

    For many economies it is a new concept. For many economies also considered that the speed of its growth or expansion is TOO fast. For many economies, they feel this market gives a chance to avoid many a regulations that they try to impose on their national money market

    19

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