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Eurocurrency Market and Eurobond Market The Eurocurrency market and Eurobond market are two important components of the international financial market. Both provide mechanisms through which funds can move across national boundaries and enable corporations, banks, governments and international institutions to obtain finance outside their domestic financial markets. Although the terms “Eurocurrency” and “Eurobond” may suggest a connection with Europe or the euro, neither necessarily refers to the European currency or to transactions conducted only in European countries. The prefix “Euro” generally indicates that a currency or financial instrument is being used outside the country where that currency is the domestic currency. The Eurocurrency market refers to the market in which a currency is deposited and lent outside the country of its origin. For example, US dollars deposited in a bank located outside the United States constitute Eurodollars. Similarly, Japanese yen deposited outside Japan can form Euroyen, and British pounds deposited outside the United Kingdom can be described as Eurosterling. Thus, the Eurocurrency market is essentially an international market for deposits and loans denominated in major currencies. The development of the Eurocurrency market was influenced by several economic and political factors. During the post-Second World War period, international trade expanded rapidly, and multinational corporations increasingly required financing in foreign currencies. At the same time, certain governments and financial institutions preferred to hold their currencies outside their domestic banking systems. The growth of international banking centres also encouraged the development of offshore currency deposits and lending. London became one of the most important centres of Eurocurrency activity, although Eurocurrency transactions are conducted in several financial centres across the world. Commercial banks are the principal participants in the Eurocurrency market. Other participants include multinational corporations, governments, central banks, institutional investors and international financial institutions. Banks accept deposits denominated in foreign currencies and use these funds to provide loans to borrowers. The market therefore performs an important financial intermediation function by transferring surplus funds from one part of the international economy to borrowers in another part. A major feature of the Eurocurrency market _____ _________ _____ ____ ____ ________ ______ __________.
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