UK Accounting Glossary
Eurodollar refers to all deposits denominated in US dollar/US dollars in banks outside the US. These deposits are not restricted to Europe, Asia, Latin America or for that matter, any particular country, but to any bank branch outside the geographical territory of the United States of America. Eurodollar does not imply a connection with Euro but is a term used for indicating a currency held in a country which is not its origin.
The Eurodollar not only plays a significant role in global capital markets but also serves as a yardstick for corporate funding interest rate/interest rates.
Deposits of Eurodollars are direct responsibilities of commercial banks accepting such deposits. These deposits are not guaranteed by any governments or government treasury. Being a low-risk investment option, Eurodollars are not totally risk-free. After 1981, deposits of Eurodollars have risen steadily. Trading in Eurodollar securities has also evolved as an important futures marketing activity. Movement of Eurodollar futures takes place in increments of 0.01 or US $25
Eurodollars are large US Dollar deposits that are made in foreign bank accounts. Eurodollars can also be deposited within the US in an International Banking Facility by non-US residents and companies. Eurodollars emerged after World War II. Initially, Europe was the main market for eurodollars, hence the prefix “euro” in eurodollars. Although the market for eurodollars has evolved since then to include countries outside Europe, the bulk of eurodollars are still found in Europe, in particular London. Eurodollars are used in international trading and securities markets. The advantage of eurodollars is that they are not under the jurisdiction of the Federal Reserve or the SEC in the case of eurodollar securities (i.e. eurodollar bond). By exporting US deposits, as eurodollars, those deposits are subject to less regulation which tends to provide added benefit to the owner of eurodollars (i.e. better return). The US Dollar is not the only currency being deposited abroad to minimize regulatory costs. The eurosterling (i.e. deposits denominated in pound sterling), and the euroyen (i.e. deposits denominated in yen) are examples of currencies deposited outside of their country of origin.
Eurodollar bonds, also termed Eurobonds, are a vital capital source for foreign governments and multinational corporations. Eurodollar though having its origin in London refers to all dollar deposits outside the USA. It is sometimes advantageous to invest in eurodollar bonds because:
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Definitions for Eurodollars are sourced/syndicated and enhanced from:
This glossary post was last updated: 9th February 2020.