Seminar on Eurocurrency Market

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.

Genesis and Growth of the Market

1950s. Eastern Europeans, afraid US would seize deposits to reimburse claims for business losses as a result of Communist takeover of Eastern Europe. Currency deposited by national governments or corporations in banks outside their home market. This applies to any currency and to banks in any country. 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). depositors receive better terms than they can receive onshore. borrowers can borrow more, possibly at power rates, than they can onshore.

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.

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.

Creation of Euro Currency

One can take the physical currency of a country & deposit it in a bank in another country. Banks do hold currency of other countries but mainly for the convenience of travellers. One can transfer deposits from within the country whose currency is in question to an offshore bank. This may well be an overseas subsidiary of the very same bank with which the original deposit was held.

Euro Countries
1) Andorra 2) Austria 3) Belgium 4) Cyprus 5) Estonia 6) Finland 7) France 8) Germany 9) Greece 10) Ireland 11) Italy

12) Kosovo 13) Luxembourg 14) Malta 15) Monaco 16) Montenegro 17) Netherlands 18) Portugal 19) San Marino 20) Slovakia 21) Slovenia 22) Spain 23) Vatican City

Attraction or Highlights of Euro Currency Market

Lack of government regulation. Pay higher deposit interest rates. Charge lower lending rates. Reserve restrictions are less costly. Gave opportunity to those who wanted to deposit or borrow dollars.

Euro Currency Market is divided into segments:

Euro Money is further comprises of: Euro deposits Euro Currency
Euro Banking/ International Banking Loan Syndicate (Syndication)

Euro Money
The international operations in capital markets & the need to undertake foreign exchange transactions in order to consummate the transfer of financial claims & that there is absence of any unified world legal framework for settlement of such claims, the market came into existence.

Euro Deposits
The deposits denominated in currencies made outside the domestic banking system operation are called as Euro deposits. Thus, when a currency deposit is made in a bank outside the jurisdiction of the central bank which issued the currency is termed as Euro deposit. More risky as beyond the control of domestic banking authority.

Euro Banking
Euro Bank is a financial intermediary that bids for time deposits & makes loans in the offshore market. Usually, this will also mean that it deals in currencies other than those of the country in which it is located.

Loan Syndication
A loan syndicate is a high structured group of financial institutions (primary banks), formed by a manager (or a group of co-managers), which agree to lend a specific amount of loan or money on common terms & conditions to a borrower. It involves a small group of knowledgeable & well capitalized banks that agree initially to provide the entire loan.

Most traded currencies by value

Rank Currency ISO 4217 code (Symbol) % daily share (April 2010)

United States Dollar Euro Japanese Yen Pound Sterling Australian Dollar

USD ($)

84.9%

2 3 4 5

EUR () JPY () GBP () AUD ($)

39.1% 19.0% 12.9% 7.6%

Financial instruments used in both Euro and Domestic Market

Euro Currency Time Deposits Euro Currency Certificates of Deposits (ECDs) Euro Commercial Paper Time Deposits Certificate of Deposits

Commercial Paper

Euro Medium Term Notes

Medium Term Notes

Current Rate of Euro vs. Indian Rupee

1EUR(EURO)= 67.0642 INR 1INR (INDIAN RUPEE)= 0.0149 EUR 1USD (Us Dollar)= 50.6073 Indian Rupee
Currency EUR vs. INR Current Price 67.0642

(On 21-03-2012)

Calculation of Euro in terms of INR

Example: Mr.A wishes to invests in Euro Market. He invests in 6 Euros then how much he will get in return? (in INR) Sol: 1EUR= 67.0642 INR So, 6 EUR = 6*67.0642= 402.3852 in INR

Euro Currency Market Absence of direct control by Central Banks. Euro market does not exist in any particular location. Euro currency market is purely wholesale market. It has got relative freedom from regulations.

Domestic Money market Direct control by central banks. It is a continuous market. Domestic market is retain banking market. Its a regulated market.

Advantages
1. It helped the economies to solve the liquidity problems. 2. It provided better investment opportunities. 3. Funds are also provided 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.

Disadvantages
1. For many economies it is a new concept. 2. For many economies also considered that the speed of its growth or expansion is TOO fast. 3. For many economies, they feel this market gives a chance to avoid many regulations that they try to impose on their national money market.

Conclusion

Thank you.. Any Queries.???