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Eurocurrency Market
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Background
The eurocurrency market originated in the a ermath of World War II when the Marshall Plan to
rebuild Europe sent a flood of dollars overseas. The market developed first in London as banks
needed a market for dollar deposits outside the United States. Dollars held outside the United States
are referred to as eurodollars, even if they are held in Asian markets such as Singapore or Caribbean
markets such as Grand Cayman.
The eurocurrency market has expanded to include other currencies such as the yen and the British
pound whenever they trade outside of their home market. However, the eurodollar market remains
the largest.
Size
The eurodollar trades mostly overnight, although deposits and loans out to 12 months are possible.
Even though deposits are domiciled o -shore, much of the activity actually takes place in New York
trading rooms while being booked into o -shore accounts. A 2016 study by the Federal Reserve Bank
indicated the average daily turnover in the eurodollar market was $140 billion. Transactions are
usually for a minimum of $25 million, and can top $1 billion in a single deposit.
Eurobond Market
There is an active bond market for companies and financial institutions to borrow in currencies
outside of their domestic market. The first such bond was by the Italian company Autostrade in 1963.
It borrowed $15 million for 15 years in a deal arranged in London and listed on the Luxembourg stock
exchange. In 2014, Apple was able to borrow $3.5 billion in the eurodollar bond market.
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The average interest rate which major London banks borrow Eurocurrency deposits from other
banks. LIBID is calculated through a survey of London banks to determine the interest rate which
they are willing to borrow large eurocurrency deposits.
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