Financial Markets and Institutions (2-downloads)

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Part 1 Introduction

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A variant of the Eurobond is Eurocurrencies, which are foreign currencies

deposited in banks outside the home country. The most important of the

Eurocurrencies are Eurodollars, which are U.S. dollars deposited in foreign banks

outside the United States or in foreign branches of U.S. banks. Because these short-

term deposits earn interest, they are similar to short-term Eurobonds. American

banks borrow Eurodollar deposits from other banks or from their own foreign

branches, and Eurodollars are now an important source of funds for American banks.

Note that the euro, the currency used by countries in the European Monetary System,

can create some confusion about the terms Eurobond, Eurocurrencies, and

Eurodollars. A bond denominated in euros is called a Eurobond only if it is sold

outside the countries that have adopted the euro. In fact, most Eurobonds are

not denominated in euros but are instead denominated in U.S. dollars. Similarly,

Eurodollars have nothing to do with euros, but are instead U.S. dollars deposited in

banks outside the United States.

Chapter 2 Overview of the Financial System

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*“Down on the Street,” 

Economist, November 25, 2006, pp. 69–71.

G L O B A L