Euri Currency Markets

Topics: Foreign exchange market, United States dollar, Currency Pages: 31 (10433 words) Published: January 26, 2013
Definition of 'Eurocurrency Market'
The money market in which Eurocurrency, currency held in banks outside of the country where it is legal tender, is borrowed and lent by banks in Europe. The Eurocurrency market is utilized by large firms and extremely wealthy individuals who wish to circumvent regulatory requirements, tax laws and interest rate caps that are often present in domestic banking, particularly in the United States.

Read more: Investopedia explains 'Eurocurrency Market'
Rates on deposits in the Eurocurrency market are typically higher than in the domestic market, because the depositor is not protected by domestic banking laws and does not have governmental deposit insurance. Rates on loans in the Eurocurrency market are typically lower than those in the domestic market, because banks are not subject to reserve requirements on Eurocurrency and do not have to pay deposit insurance premiums.

Read more: Euro currency is the time deposit of money in an international bank located in a country different from the country that issued the currency. However the Eurocurrency market is the money market for borrowing or lending currencies that are in the form of deposits in an international bank and is used to execute domestic transaction.

The money market in which Eurocurrency, currency held in banks outside of the country where it is legal tender, is borrowed and lent by banks in Europe.The Eurocurrency market allows for more convenient borrowing, which improves the international flow of capital for trade between countries and companies.

For example: a Japanese company borrowing U.S. dollars from a bank in France is using the Eurocurrency market.

Features of Eurocurrency markets

The rise of the Petro – Dollars market shifted the focus of Euro-Currency operations away from Europe. With the Globalization of the Euro-Currency market, it was now referred to as the ‘Offshore-Currency market’ and the prefix ‘Euro’ was replaced by the prefix ‘Offshore’ to denote the particular brand of banking transactions which these markets represented. OFC’S act as channels for global trade and facilitate international capital flows. International joint ventures are often structured as companies in an offshore location when neither party in the joint venture wishes to form the company in the other party’s home jurisdiction for fear of unnecessary tax consequences. A fundamental characteristic of OFC’s is that they are created out of deliberate intention by host governments whereas the Euro-Currency market evolved out of specific type of banking transactions.  

1. Transactions in each currency take place outside the country of origin of that currency.
2. Even though the transactions are recorded outside the country of issue, it continues to be held in the country of issue. This is because a currency cannot be used for settlement of commercial liability outside its domestic area. (The existence of the foreign exchange market is based on this feature.)

3. Euro-Currency deposits and loans fall outside the regulatory and supervisory control of the monitoring authority in the country of origin.
4. Euro-Currency market is distinct from the foreign exchange market. It is a market for deposits and for loans between banks and between banks and their customers. It is a market in which foreign currencies are lent and borrowed whereas in the foreign exchange market, foreign currencies are bought and sold. This market therefore converts short term deposit resources into short and medium term loans for financing projects. While the Euro- Currency market operates on interest rates, the foreign exchange market operates on exchange rates.

5. Due to absence of regulation, deposits in this market are...
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