Eurocurrency is currency held on deposit outside its home market, i.e., held in banks located outside of the country which issues the currency.
For example, a US dollar denominated deposit in a Singapore bank is Eurocurrency, or more specifically Eurodollar deposit. The Euro- prefix can be applied to any combination of deposits and financial institution. For example, a deposit denominated in Euros held in a Brazilian bank is a Euroeuro deposit.
Eurocurrency is used as a source of short- or medium-term finance, especially in international trade, because of easy convertibility.
Eurocurrency does not have to involve either the euro currency or the eurozone.
Eurocurrency and Eurobond markets avoid domestic interest rate regulations, reserve requirements and other barriers to the free flow of capital.
Currencies
Euro Currency Market (BSE) - Subject : Bussiness Economic Paper : International finance.
The four main Eurocurrencies are the US dollar, the Euro, the British pound and the Japanese yen; the currencies of the major economies of the world.
Eurobanks
A eurobank is a financial institution anywhere in the world which accepts deposits or makes loans in any foreign currency.
Eurocredits
Eurocredit is a loan whose denominated currency is not the lending bank's national currency. A eurocredit loan would be made by a U.S. bank to a lender requiring a denominated currency which differs from the bank's local currency (USD) for specific reasons, most likely some sort of business operations or trade requirements. Despite the inclusion of the word "euro," a eurocredit is not immediately derived from the euro.
Eurocredits are short-to-medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign governments, nonprime banks, or international organizations. The loans are denominated in currencies other than the home currency of the Eurobank. Because these loans are frequently too large for a single bank to handle, Eurobanks will band together to form a bank lending syndicate to share the risk. The credit risk on these loans is greater than on loans to other banks in the interbank market. Thus, the interest rate on Eurocredits must compensate the bank, or banking syndicate, for the added credit risk. On Eurocredits originating in London the base lending rate is LIBOR. The lending rate on these credits is stated as LIBOR +X percent, where X is the lending margin charged depending upon the creditworthiness of the borrower. Additionally, rollover pricing was created on Eurocredits so that Eurobanks do not end up paying more on Eurocurrency time deposits than they earn from the loans. Thus, a Eurocredit may be viewed as a series of short-term loans, where at the end of each time period (generally three or six months), the loan is rolled over and the base lending rate is repriced to current LIBOR over the next time interval of the loan.
See also
- World currency
- Reserve currency
References
- Butler, Kirt (2008) Multinational Finance (4th ed). South Western, Tompson.
- Collins English Dictionary รข€" Complete and Unabridged, 12th Edition 2014. (1991, 1994, 1998, 2000, 2003, 2006, 2007, 2009, 2011, 2014
