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    Eurocurrency Market: Presented by Suresh George Jacob Sreeraj R Sreelekha S

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    Suresh George Jacob
    The document discusses the Eurocurrency market. It defines Eurocurrency as currency deposited outside the country of its issue. The market is international, short-term (1 day to several months), and wholesale (transactions over $1 million). Key factors contributing to its growth include relaxation of exchange controls, US balance of payments deficits, and petrodollar flows. Major participants include governments, central banks, commercial banks, and corporations. While increasing liquidity and credit, it can impact monetary stability.

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    Eurocurrency Market: Presented by Suresh George Jacob Sreeraj R Sreelekha S

    Uploaded by

    Suresh George Jacob
    4K views16 pages
    The document discusses the Eurocurrency market. It defines Eurocurrency as currency deposited outside the country of its issue. The market is international, short-term (1 day to several months), and wholesale (transactions over $1 million). Key factors contributing to its growth include relaxation of exchange controls, US balance of payments deficits, and petrodollar flows. Major participants include governments, central banks, commercial banks, and corporations. While increasing liquidity and credit, it can impact monetary stability.

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    Euro Currency Market

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    The document discusses the Eurocurrency market. It defines Eurocurrency as currency deposited outside the country of its issue. The market is international, short-term (1 day to several months), and wholesale (transactions over $1 million). Key factors contributing to its growth include relaxation of exchange controls, US balance of payments deficits, and petrodollar flows. Major participants include governments, central banks, commercial banks, and corporations. While increasing liquidity and credit, it can impact monetary stability.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    4K views16 pages

    Eurocurrency Market: Presented by Suresh George Jacob Sreeraj R Sreelekha S

    Uploaded by

    Suresh George Jacob
    The document discusses the Eurocurrency market. It defines Eurocurrency as currency deposited outside the country of its issue. The market is international, short-term (1 day to several months), and wholesale (transactions over $1 million). Key factors contributing to its growth include relaxation of exchange controls, US balance of payments deficits, and petrodollar flows. Major participants include governments, central banks, commercial banks, and corporations. While increasing liquidity and credit, it can impact monetary stability.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    Eurocurrency Market

    Presented by
    Suresh George Jacob
    Sreeraj R
    Sreelekha S
    Meaning and Scope
    Eurocurrency/Eurodollar is the currency deposited
    outside the country of its issue.

    The commercial banks accept interest bearing


    deposits denominated in a currency other than the
    currency of the country in which they operate.

    They re-lend these funds either in the same currency


    or in the currency of the country in which they operate
    or in the currency of a third country.
    Important Features
    1. It is an international market and it is under no
    national control.

     The dollar deposits in London are outside US control


    because they are in London

     It is outside the British control because they are in


    dollars.
    Important Features
    2. It is a short-term money market.

     The deposits in this market range in maturity from one


    day to several months and interest in paid on all of
    them
    3. It is a wholesale market.

     The size of the individual transaction is usually above


    $ 1 million
    Important Features
    4. It is a highly competitive and sensible market.

     Supply and demand changes according to the interest


    rates.
    FACTORS CONTRIBUTED TO THE GROWTH OF
    EURO CURRENCY
    1. Relaxation of exchange control and resumption of
    currency convertibility.
    The general relaxation of exchange control , the
    stability of the exchange market and the redemption
    of the currency convertibility in western Europe in
    1958 provided an added impetus to the growth of the
    euro market .
    FACTORS CONTRIBUTED TO THE GROWTH OF
    EURO CURRENCY
    2.The political factors
    The cold war between the United states and the
    communist countries also contributed to the euro
    currency market.
    3.Balance of payment deficit of the US
    Deficit in the balance of payment in US meant an
    increasing flow of US dollar to those countries which
    had a surplus with the US .
    FACTORS CONTRIBUTED TO THE GROWTH OF
    EURO CURRENCY

    4. The regulation of ‘Q’


    Regulation of ‘Q’ which fixed the maximum rate of interest
    payable to the banks in US and the prohibition of payment
    of interest on deposit for less than 30 days very
    significantly contributed to the fast growth of the euro
    market.
    5.Innovative banking
    The advent of the Innovative banking ,spearheaded by the
    US banks in europe and the willingness of the banks in the
    market to operate on a narrow basis also encouraged the
    growth of euro market.
    FACTORS CONTRIBUTED TO THE GROWTH OF
    EURO CURRENCY
    6.Supplay of petrodollars
    The flow of petro dollar facilitated by the increase in
    the OPEC’S oil revenue following by the oil price hike
    since 1973 has been a significant source of growth of
    Euro currency.
    THE PARTICIPANTS
    Governments of all political categorizations
    International organizations
    Central Banks
    Commercial Banks
    Corporations
    Supply and Demand
    An Evaluation Of Eurodollar Market
    Advantages
     Increases International liquidity
     Expands domestic credit creation
     Act as a ‘Vehicle currency’ For carrying world trade
     Globalization increases its importance
    Disadvantages
     Affects international monetary Stability
    Types of Transactions
    1. Japanese Exporter, earning USD, keeps these USD
    in London Bank (say AMEX)as Deposit.

    2. AMEX bank may use such deposits for lending to


    a French Importer.

    3. Indian exporter, earning Japanese Yen, keeps


    these Yen in Korea as Deposit

    4. Nigerian Importer avails loan in INR from Russia


    to import machinery from India.
    Dominance of Dollar in the market:

    – 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
    Countries responsible for the growth
    of the Euro-Currency Market:
    – China (fear that its Fx in USD would be blocked)
    – USA (indeed blocked identifiable Fx in USD
    in1950, federal Reserve Act, regulation ‘Q’ and
    ‘M’; control and restrictions on borrowing funds
    in US in 1965, and introduction of interest
    equalization tax in 1963)
    – Korea (War broke out in 1950)
    – Russia (erstwhile USSR){because of their
    banking presence in Paris and London}
    – UK (policy of not granting sterling loan outside
    sterling area in 1957)
    Conclusion
    The development of the International monetary system
    and foreign exchange market has been Significantly
    influenced by the growth of Eurocurrency Market.
    But the advantages and disadvantages associated with the
    Eurocurrency Market have given rise to the doubt
    whether it is a welcome tonic or a slow poison to the
    international system.

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