Eurodollar: Definition, Why It’s Important, and Example
By James Chen
Updated January 31, 2021
Reviewed by Julius Mansa
What Is the Eurodollar?
The term eurodollar refers to U.S. dollar-denominated deposits at foreign banks or at the overseas branches of American banks. Because they are held outside the United States, eurodollars are not subject to regulation by the Federal Reserve Board, including reserve requirements. Dollar-denominated deposits not subject to U.S. banking regulations were originally held almost exclusively in Europe (hence, the name eurodollar). Now, they are also widely held in branches located in the Bahamas and the Cayman Islands.
- Eurodollars refer to dollar-denominated accounts at foreign banks or overseas branches of American banks.
- The eurodollar market is one of the world’s biggest capital markets and consists of sophisticated financial instruments.
The fact that the eurodollar market is relatively free of regulation means such deposits can pay higher interest. Their offshore location makes them subject to political and economic risk in the country of their domicile; however, most branches where the deposits are housed are in very stable locations.
The eurodollar market is one of the world’s primary international capital markets. They require a steady supply of depositors putting their money into foreign banks. These eurodollar banks may have problems with their liquidity if the supply of deposits drops.
17,080 views Mar 28, 2021 EUROPE
Eurodollars are essentially, all those dollar deposits outside of the US banking system. Banks registered abroad can create offshore US dollar loans and derivatives. This creates US dollar-liabilities, but these Banks registered outside USA don’t have the ability to issue base money. Only the Federal Reserve has that Power. Eurodollars are accounting entries. Electronic payment system. It’s estimated over 90% of international trade is financed through the eurodollar market. It’s also worth pointing out that the Eurodollar market is almost entirely a cashless market. It is for simplicity sake, banks balance sheets. Eurodollars are simple promises of payment. After world war II Europe was economically weak and the effects of the war debasteted the economy. The United States provided funds through the Marshall Plan to rebuild Europe. US Banks started to proliferate Outside US jurisdiction and this led to wide injection of US dollars Offshore providing liquidity In consequence it surge a development of a separate, less regulated market for the deposit of those funds that has not changed that much. Support the channel Eurodollar explained simple #eurodollar#tiefinance#eurodollarshttps://www.paypal.com/paypalme/tiefi…