Explain how eurocurrency is created, Financial Management

Assignment Help:

Explain how Eurocurrency is created.

Answer: The center of the international money market is the Eurocurrency market. A Eurocurrency is a time deposit of money in an international bank situated in a country dissimilar from the country that issues the currency. For instance, Eurodollars are deposits of U.S. dollars in banks situated outside of the United States. As an example, suppose a U.S. Importer purchases $100 of merchandise from a German Exporter and pays for the purchase by drawing a $100 test on his U.S. checking account (demand deposit).

If the funds are not required for the operation of the business, the German Exporter should be deposit the $100 in a time deposit in a bank outside the U.S. and get a greater rate of interest as compared to if the funds were put in a U.S. time deposit. Suppose the German Exporter deposits the funds in a London Eurobank. The London Eurobank credits the German Exporter along with a $100 time deposit and deposits the $100 into its correspondent bank account (demand deposit) along with the U.S. Bank (banking system) to hold as reserves. Two points are noteworthy. First, the whole $100 remains on deposit in the U.s. Bank. Second, the $100 time deposit of the German Exporter in the London Eurobank denotes the creation of Eurodollars. This deposit exists additionally to the dollars deposited in the U.S. therefore; no dollars have flowed out of the U.S. banking system in the creation of Eurodollars.


Related Discussions:- Explain how eurocurrency is created

Contingency planning, Contingency Planning:   Once the events are eval...

Contingency Planning:   Once the events are evaluated and categorised, and the levels of risk attaching to them have established.  The organisation should then commence pla

Working capital cycle, Q. Working capital cycle? In a manufacturing con...

Q. Working capital cycle? In a manufacturing concern the working capital cycle is start with the purchase of the raw material and ends with the realization of the cash from the

Regular payback period, The director of capital budgeting for a firm has re...

The director of capital budgeting for a firm has recognized two mutually exclusive projects, A and B, with the following expected net cash flows:

Calculate average amount of working capital required, X & Y is desirous to ...

X & Y is desirous to purchase a business and has consulted you, and one point on which you are asked to advice them, is the average amount of working capital which will be required

Does high operating leverage always mean high business risk, Does high oper...

Does high operating leverage always mean high business risk?  Explain. High operating leverage does not all the time mean high business risk.  If the companies sales are quite

Approaches of the strategic human resource management, Approaches of the St...

Approaches of the Strategic human resource management (SHRM): 1. Attempts to the human linkage of some kind activities with competency based performance measures. 2. Attemp

Return on equity, Your quantitative analysis will describe the financial st...

Your quantitative analysis will describe the financial strength of you company using the metrics we discussed in class. You may use other measures at your discretion, but the follo

Bajaj Electronics, 1. How would you judge the potential profit of Bajaj Ele...

1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit?

Contrast a benefit and a defined contribution pension plan, Compare and con...

Compare and contrast a defined benefit and a defined contribution pension plan. In defined benefit plan retirement remuneration are determined by a formula that typically

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd