Investments, tenth edition

  Eurodollars 

    Eurodollars   

 are dollar-denominated deposits at foreign banks or foreign branches of 

American banks. By locating outside the United States, these banks escape regulation by 

the Federal Reserve. Despite the tag “Euro,” these accounts need not be in European banks, 

although that is where the practice of accepting dollar-denominated deposits outside the 

United States began. 

 Most Eurodollar deposits are for large sums, and most are time deposits of less than 

6 months’ maturity. A variation on the Eurodollar time deposit is the Eurodollar certifi-

cate of deposit, which resembles a domestic bank CD except that it is the liability of a 

non-U.S. branch of a bank, typically a London branch. The advantage of Eurodollar CDs 

over Eurodollar time deposits is that the holder can sell the asset to realize its cash value 

before maturity. Eurodollar CDs are considered less liquid and riskier than domestic CDs, 

however, and thus offer higher yields. Firms also issue Eurodollar bonds, which are dollar-

denominated bonds outside the U.S., although bonds are not a money market investment 

because of their long maturities.