EUROCURRENCY MARKET

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used to describe deposits residing in banks that are located outside the borders of the country that issues the deposit is denominated in For example: A deposit denominated in us dollars residing in a japanese bank is a eurocurrency deposit, or more 3/26/12

HOW IT ORIGINATED
*After the second world war, the amount of U.S.dollars outside the united states inbreed enormously. *As a result, enormous sums of us 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 deposited in North American banks would be frozen as a retaliation
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* It decided to move some of its holding to the Moscow Barony bank a soviet owned bank with a British charter. *

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THE BRITISH bank would then deposit that money in the US

* Gradually, as a result of the successive commercial deficits of the united states the Eurodollars market expanded world wide

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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 3/26/12 regulation of the national

FEATURES OF EUROCURRENCY MARKET *it is an international market and it is under no nation control: it has come up as the most important channel for mobilizing and deploying funds on an international scale.
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3.Eurodollar markets are the time 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 3/26/12

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 also reacts to changes in the 3/26/12

Factors for the expansion *THE SUEZ CRISIS:(1957) IT WAS A CRISIS WHERE BY THE STERLING CREDIT FACILITIES WERE UNABLE TO REACH BRITAIN PROVIDED SPEED TO THE GROWTH OF EURODOLLAR MARKET.
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The British banks ultimately found a good substitute in dollar. As there was already available pool of USD held by residents outside US. 2.relaxtation of exchange control and Resumption of currency convertibility: Resumption of currency convertibility was seen in euro(1958).
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*it was cold war led to growth of Eurodollar market. *As the communist had a fear that their dollars deposited in banks in the US, would be seized due to hostilities. *It was then the Russian & European banks preferred to their dollars with 3/26/12

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 3/26/12

5.REGULASIONQ Regulation Q was a united states go regulation witch fixed the maximum interested payment of interest on deposits less than 30 days unlike US, market paid interest on the deposits of less than 30 days
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PARTICIPANTS IN EUROCURRENCY MARKET

1Government 2InternationalOrganization 3 Central banks 4 Commercial banks 5 Corporations 6 MNC 7 Traders 8 3/26/12 Individuals

ADVANTAGES
1 It helped the economies to solve the liquidity problems: 2It 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 3/26/12

DISADVANTAGES it is a 1 For many economies

new concept 2 For many economies also considered that the speed of growth or expansion is TOO fast. 3 for many economies, they feel this market gives a chance to avoid many a regulations that they try to
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