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Eurocurrency Markets Essay

894 words - 4 pages

With the spread of international trade and the growth of American multinationals, overseas exchange between financial markets raised more and more.
Within this work will be studied an important market that exercises great influence on the international financial system, the Eurocurrency Market.
Eurocurrency markets can be defined with simplification by a market which is dealing with any currency traded outside of its country of origin.
It consists of banks (called Eurobanks) accepting deposits and making loans in foreign policies.
The Eurocurrency Market is mainly market is dominated by US $ or the Eurodollar. An Eurodollar is created ‘when an American transfers a dollar deposit from ...view middle of the document...

Indeed, this policy could be considered as the source of the growth, and particularly in some particular aspects such as reserve requirements on deposits, special charges and taxes, required concessionary loan rates, interest rate ceilings or also regulations limiting competitively between the banks. Moreover, during this period of time, the capital control of the US banking system did not allow banks to lend US$ to non-residents. It must also be added that during the 1950’s, the US balance of payments was in deficit.
The post World War II period is the point of departure for the growth of multinational corporations as we know them. These multinational corporations are lenders and borrowers in the Eurocurrency market, and their rise is one of the main reasons of the Eurocurrency market’s growth. Furthermore, the end of the Second World War led to the Cold War, the opposition of two models, the American one, capitalist, and the Soviet one, communist. During this period, the two blocks wanted to seduce Europe. This is the reason why, the Eurodollar market was first originated in Europe, more precisely in France and England, and has known an important growth.
On the other side, there was a fear by Soviet Bloc countries that dollar deposits may be attached by Americans with claims against the communists.
The Soviets really wanted to keep their assets in US$ outside the United States of America. Another major factor in the growth of the Eurocurrency Market concerns the oil. Indeed, just like for the soviet assets in US$, oil exporters were afraid of a hypothetic freeze of their assets by the United States of America. Furthermore, the two oil crises in 1973 and 1979, leading to an increase in the oil’s price...

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