Page 58 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

Mahesh Kumar Sarva, Lovely Professional University Unit 4: Eurocurrency Markets

Unit 4: Eurocurrency Markets Notes

CONTENTS
Objectives
Introduction

4.1 Characteristics of the Eurocurrency Market
4.1.1 Significance
4.2 Eurocurrency Interest Rates

4.2.1 Instruments and Rates of Eurocurrency Markets
4.2.2 Growth of the Eurodollar Market
4.2.3 Example of Euro-dollar Creation
4.3 International Equity Market, Bonds Market and Euro Bond Market
4.4 External Commercial Borrowings

4.4.1 Sources of External Commercial Borrowings
4.5 Euro Debt
4.5.1 Foreign Currency Convertible Bonds (FCCBs)

4.5.2 Pure Euro Debt
4.6 Summary
4.7 Keywords
4.8 Review Questions
4.9 Further Readings

Objectives

After studying this unit, you will be able to:

Explain the characteristics of Eurocurrency markets
Discuss the Euro Currency Interest rates
Elaborate the International Equity Market, Bonds Market and Euro Bond Market
Describe the External Commercial Borrowings
Discuss the Euro Debt market

Introduction

A Eurocurrency is any freely convertible currency deposited in a bank outside its country of
origin. Pounds which are deposited in US become eurosterling, dollars deposited in London
become Eurodollars. These deposits can be placed in a foreign bank or in a foreign branch of a
domestic US bank. Any convertible currency can exist in “Euro” e.g. we can have Eurosterlings,
Euroyen, Euromarks, Eurodollars and so on. The Eurocurrency market consists of those banks
which accept deposits and make loans in foreign currencies. The eurocurrency market allows for

LOVELY PROFESSIONAL UNIVERSITY 53