Eurocurrency Markets

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Date Submitted: 03/12/2011 10:53 AM

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With the spread of international trade and the growth of American multinationals, overseas exchange between financial markets raised more and more.

Within this work will be studied an important market that exercises great influence on the international financial system, the Eurocurrency Market.

Eurocurrency markets can be defined with simplification by a market which is dealing with any currency traded outside of its country of origin.

It consists of banks (called Eurobanks) accepting deposits and making loans in foreign policies.

The Eurocurrency Market is mainly market is dominated by US $ or the Eurodollar. An Eurodollar is created ‘when an American transfers a dollar deposit from an American Bank to a foreign bank and keeps it there in dollars” It can be considered as the Money market of the Euro Market.

Eurobond plays an important role in Eurocurrency markets too, and are functioning on the same basis, they are sold outside the country whose’s currency is the bond’s principal. They are frequently used by companies since it has many taxes advantages and little government regulation.

Eurocurrency loans are made on a floating – rate basis, Interest rates on loans to governments, corporations and other clients are set at a fixed margin above LIBOR (London Interbank Offered Rate, standard rate for short term exchanges in Eurocurrencies) for a given period and currency.

In the second-half of the 20th century, the Eurocurrency market has known a tremendous growth, from 12.4 US$ Billions in 1963 to 15,928.9 US$ Billions in 2003.

In order to explain the impact of this growth of the Eurocurrency market for domestic and international financial systems, we will focus on the previous reasons of this growth.

The Eurodollar market is the most important of the Eurocurrency market, and that’s compehensible that a restrictive policy by the US government was established just before the growth of the Eurodollar market. Indeed, this policy could be...