Eurocurrency
Eurocurrency is deposits in banks that are located outside the borders of the country that issue the currency the deposit is denominated in. For example, a deposit denominated in Japanese Yen held in a Brazilian bank is a Eurocurrency deposit. Likewise a deposit denominated in US dollars held in a Singapore bank is a Eurocurrency deposit, or more specifically or more clearly a Eurodollar deposit.
Eurocurrency is the currency of any country held on deposit in Europe outside its home market: used as a source of short- or medium-term finance, especially in international trade, because of easy convertibility.[1]
Eurocurrency does not have to involve either the euro currency or the eurozone.
Today the Eurocurrency and Eurobond markets are active because they avoid domestic interest rate regulations, reserve requirements and other barriers to the free flow of capital.
Currencies
The four main Eurocurrencies are the US dollar, the eurozone euro, the British pound and the Japanese yen; the currencies of the major economies of the world....
Eurobanks
A eurobank is a financial institution anywhere in the world which accepts deposits or makes loans in any foreign currency.[2]
Eurocredits
Eurocredit is a loan whose denominated currency is not the lending bank's national currency. A eurocredit loan would be made by a U.S. bank to a lender requiring a denominated currency which differs from the bank's local currency (USD) for specific reasons, most likely some sort of business operations or trade requirements. Despite the inclusion of the word "euro," a eurocredit is not immediately derived from the euro. [3]
Eurocredits are short-to-medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign governments, nonprime banks, or international organizations. The loans are denominated in currencies other than the home currency of the Eurobank. Because these loans are frequently too large for a single bank to handle, Eurobanks will band together to form a bank lending syndicate to share the risk. The credit risk on these loans is greater than on loans to other banks in the interbank market. Thus, the interest rate on Eurocredits must compensate the bank, or banking syndicate, for the added credit risk. On Eurocredits originating in London the base lending rate is LIBOR. The lending rate on these credits is stated as LIBOR +X percent, where X is the lending margin charged depending upon the creditworthiness of the borrower. Additionally, rollover pricing was created on Eurocredits so that Eurobanks do not end up paying more on Eurocurrency time deposits than they earn from the loans. Thus, a Eurocredit may be viewed as a series of short-term loans, where at the end of each time period (generally three or six months), the loan is rolled over and the base lending rate is repriced to current LIBOR over the next time interval of the loan.
See also
References
- Butler, Kirt (2008) Multinational Finance (4th ed). South Western, Tompson.
- Collins English Dictionary – Complete and Unabridged, 12th Edition 2014. (1991, 1994, 1998, 2000, 2003, 2006, 2007, 2009, 2011, 2014