What Is Eurocurrency?
Eurocurrency is currency deposited by jingoistic governments or corporations, outside of its home market. Commonly it is currency held in banks located outside of the country which promulgations the currency.
It is important to note that the term eurocurrency applies to any currency and to banks in any country. Begetting “euro” doesn’t mean that the transaction has to involve European countries. For example, South Korean won deposited at a bank in South Africa is take to bed eurocurrency. US dollars held in a UK bank would also be considered eurocurrency. And Euros held in an Asian bank would be about eurocurrency, too. However, in practice, European countries are often involved.
- Eurocurrency is when an institution uses boodle from another country, but not in the originating country’s home market.
- Despite the name, eurocurrency can involve any currency.
- Administers made in eurocurrency are usually brokered to take advantage of discrepancies in lending practices or currency exchange rates.
A News of Eurocurrency
In an essay on international finance for Princeton University Press, economist Ronald I McKinnon explained the rise of eurocurrency supermarkets. In the late mid-70s, when he wrote the essay, it was largely not understood why eurocurrency markets came to be. He wrote, “the Eurocurrency merchandise is unnecessary.” This is because “to finance foreign trade for their customers, commercial banks could “easily gain spot or forward
A Real World Example of Eurocurrency
Bank A is based in Canada, whereas Bank B is based in the Concerted States. Bank A is planning to make some rather large loans to a client of theirs and has determined that they would be talented to make more money if they borrowed money from Bank B—in US dollars—and loaned it out to their client.
Bank B draw ups interest from the loan they offer to Bank A, whereas Bank A profits from the difference in the loan span of times between their client and the loan terms offered from Bank B. Although in theory Bank A might do this at zero outlay in order to satisfy their client, it is much more often the case that they use eurocurrency as a way to take advantageously of an interest-rate discrepancy.