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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.
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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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)
Verfügbare Formate
Als PPTX, PDF, TXT herunterladen oder online auf Scribd lesen
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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