Eurodollars:

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Although most Eurodollars are deposited in Europe, the term applies to any dollar deposit in foreign banks or in foreign branches of U.S banks. There exists a substantial, very active market for deposit and leading of Eurodollars. This market is a wholesale one in that the amounts involved are at least $ 100000. Moreover the market is free of government regulations, as it is truly international scope.

 

The rates quoted on deposits vary according to the maturity of the deposit, while the rates on loans depend on maturity and default risk. For a given maturity, the leading rate always exceeds the deposit rate. The bank makes it money on the spread. The benchmark rate in this market is 6-month London interbrain offer rate.  (LIBOR). This is the rate at which banks make loan to each other. All others borrowers are quoted rates in excess of this rate, such as LIBOR + 1\2 PERCENT.

 

As a marketable security, the Eurodollar time deposit is like a negotiable certificate of deposit. Most deposit have a maturity of, less than a year, and they can be sold in the market prior to maturity. Call money deposits are available, allowing investors to get their money back on demand, and there are 1-day (overnight) deposits. For the large corporation with ready contact with international money centers, the Eurodollar deposit usually is an important investment.

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