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Euro Currency Deposits: Aakash Bafna (Tybms A) 9100108

The document discusses Eurocurrency deposits and the Eurocurrency market. It defines a Eurocurrency deposit as a deposit made in a currency outside the home country of that currency, typically deposited in a foreign bank. Deposits are normally accepted for periods of 1 day to 1 year, with 85% being for 6 months. The minimum deposit size is typically $50,000. It then defines the Eurocurrency market as the money market where Eurocurrencies are borrowed and lent. Key features include various cross-border transactions, highly competitive interest rates linked to LIBOR, and the dominance of dollar-denominated transactions, though other currencies are growing.

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Akash Bafna
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57 views3 pages

Euro Currency Deposits: Aakash Bafna (Tybms A) 9100108

The document discusses Eurocurrency deposits and the Eurocurrency market. It defines a Eurocurrency deposit as a deposit made in a currency outside the home country of that currency, typically deposited in a foreign bank. Deposits are normally accepted for periods of 1 day to 1 year, with 85% being for 6 months. The minimum deposit size is typically $50,000. It then defines the Eurocurrency market as the money market where Eurocurrencies are borrowed and lent. Key features include various cross-border transactions, highly competitive interest rates linked to LIBOR, and the dominance of dollar-denominated transactions, though other currencies are growing.

Uploaded by

Akash Bafna
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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AAKASH BAFNA (TYBMS A) 9100108

EURO CURRENCY DEPOSITS


A Eurocurrency Deposit is a deposit in the relevant currency with a bank outside the home country of that currency. A short-term certificate of deposit with a fixed interest rate made in a currency outside the jurisdiction of the issuing central bank. A deposit of a cash investment originating from a country other than the one in which the deposit resides. Typically Eurocurrency deposits consist of U.S. cash equivalents that are deposited in a foreign bank.
Deposits

are normally accepted for

periods from one day to one year.85% of the deposits are for six months maturity. This is the standard maturity for Euro-currency deposits. Generally the minimum size of deposits in these markets is USD 50000 or equivalent in other currencies. These deposits are unsecured and un-insured. For example, one may purchase a CD in U.S. dollars and deposit it in a bank in Great Britain. Eurocurrency deposits help persons and businesses hedge against short-term fluctuations in exchange rates.

AAKASH BAFNA (TYBMS A) 9100108

Define Euro-currency market. Enumerate its characteristics features FEATURES EURO CURRENCY MARKET: 1. Types of transactions 2. Control of the country of issue of the currency 3. Huge amounts of transactions 4. Highly competitive Market 5. Floating rates of interest based on LIBOR 6. Dominance of Dollar denominated transactions

Euro-currency 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 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.

AAKASH BAFNA (TYBMS A) 9100108

Types of transactions: Japanese Exporter, earning USD, keeps this USD in London Bank (say AMEX) as Deposit. AMEX bank may use such deposits for lending to a French Importer. Indian exporter, earning Japanese Yen, keeps these Yen in Korea as Deposit .Nigerian Importer avails loan in INR from Russia to import machinery from India. Huge amounts of transactions: Generally they are in only millions of USD.This has lead to Syndication of loans, where large numbers of banks participate in the lending operations. It also consists of pool of large number of short term deposits, which provides the biggest single source of funds for commercial banks. Highly competitive Market: There are no entry barriers. There is free access to the new institutions in the market. The lending rates are low and deposit rate are high, thus allowing a wafer thin margin for operations. Consumers, i.e. investors and borrowers derive advantage out of this situation. Floating rates of interest based on LIBOR: The rate of interest in the market is linked to the Base Rate usually LIBOR, i.e. London Inter-Bank Offered Rate .The rate of interest on advances and deposits is reviewed periodically and amended according to changed circumstances, if any in LIBOR Dominance of Dollar denominated transactions: Dollar is a leading currency traded in the market (about 90% to 95% market share).However other currencies are now emerging thus reducing the role of dollar somewhat (about 80% market share) Euro Japanese Yen Pound Sterling
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