The Euro-Dollar Market

Meaning

A euro currency can be termed as a currency used

for financial transactions outside the country of its
origin. Most Euro currency claims are in Euro dollars
which stand for dollar claims on banks outside
United States. It bears the same exchange as any
ordinary US dollar has in terms of other currencies.
When an America organization deposits/ lends its
funds with an American bank in London, it is Euro
Deposits/ lending. when the same transaction is
conducted in us it will not be a Euro transaction.
Euro-dollars have two basic characteristics:
 first, they are short term obligations to pay
dollars;
 second, they are obligations of banking
offices located outside the U.S.
Origin And Growth

 Flow of U.S. Aid

 Cold war
 Decline in the importance of sterling
 Regulation- Q
 Other U.S. Measures
 BOP deficit in U.S.
 Petro-Dollars
 Innovative Banking
Features of Euro Dollar Market

International
Market
Independent Market
Wholesale Market
Competitive Market
Short Term Market
Inter Bank Market
Determination of Interest rate

Euro currency interest rates are purely

determined by the demand and supply
factors. Euro currency is away from any
government control. Euro currency interest
rates are generally akin to the interest rate in
the home country. It is because each
country’s interest rates influence the Euro
currency rates as they are part of an
integrated money market.
Instrument of Euro-Market

Syndicated Loan
Bond Issue
Note Issuance Facility
Commercial Paper
Equity related bonds
Role in International Financial
System
Positive
Effects
Adverse Effects

Its role in Developing Countries