What do you mean by Eurocurrency Market? What are the special features of Eurocurrency market?


Ans. Eurocurrency market is an international capital market which specializes in borrowing and lending of currencies outside the country of issue. Thus, deposits in dollars with a bank in London are Eurodollars, Similarly, Japanese Yen held by banks in London are Euroyen. The main centers of Eurocurrency are Loan and a few other places in Europe and a few centers in Singapore and Hongkong.   * Special features of Eurocurrency market:   i). Transaction in each currency take place outside the country to its issue.  

ii). Settlement of all transactions has to take place only in the country of issue.   iii). Eurocurrency market is not a foreign exchange market. It is a market for deposit with and between banks and for loans by banks to the non bank public. It is a market in which foreign currencies are lent and borrowed.  

iv). The transactions involve huge amount of dollars and large number of banks.  

v). Interest in Eurocurrency market is generally a floating rate of interest.  

vi). US Dollar remains the lending currency traded in the Eurocurrency market.


What are the different Eurocurrency market? Write short notes on different Eurocurrency market?

Ans. Eurocurrency market can be divided into following four categories:  

i). Eurocredit marketMost of the lending in Eurocurrency markets takes in the form of Eurocredit. Eurocredits are medium and long term loans provided by international group of banks in currencies which need not be those of the lenders or borrowers.

  • ii). Eurobond market:

    A major source of borrowing at Euro markets is through the issuance of international bonds known as Eurobonds. Eurobonds are those sold for international borrowers in several markets simultaneously by international group of banks. They are issued on behalf of multinational corporations, international agencies and governments. There are different types of bonds named : a). Straight or fixed rate bond. b). Convertible Bond c).Currency option bond d). Floating rates bond.

  • iii). Eurocurrency Deposit Market

    :  Eurocurrency deposits represents the funds accepted by the banks themselves. This sector of the Eurocurrency market consists of all deposits of currencies placed with banks outside their home currency.

  • iv). Euronotes Market:

    Euronotes the instruments of borrowing issued by corporate’s in the Eurocurrency market, with or without the underwriting support of banks.

  • Note: Interest in Eurocurrency market is generally a floating rate of interest. Periodically, the interest rate will change with reference to a benchmark rate like LIBOR.

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