Eurodollar

What is the 'Eurodollar'

The eurodollar is a U.S.-dollar denominated deposits at foreign banks or foreign branches of American banks. By locating outside of the United States, eurodollars escape regulation by the Federal Reserve Board.

BREAKING DOWN 'Eurodollar'

Originally, dollar-denominated deposits not subject to U.S. banking regulations were held almost exclusively in Europe; hence the name eurodollars. These deposits are still mostly held in Europe, but they're also held in such countries as the Bahamas, Canada, the Cayman Islands, Hong Kong, Japan, the Netherlands Antilles, Panama and Singapore. Regardless of where they are held, such deposits are referred to as eurodollars.

Since the eurodollar market is relatively free of regulation, banks in the eurodollar market can operate on narrower margins than banks in the United States. Thus, the eurodollar market has expanded largely as a means of avoiding the regulatory costs involved in dollar-denominated financial intermediation.

RELATED TERMS
  1. Repatriation

    The process of converting a foreign currency into the currency ...
  2. Ted Spread

    The price difference between three-month futures contracts for ...
  3. Foreign Branch Bank

    A type of foreign bank that is obligated to follow the regulations ...
  4. International Banking Act of 1978

    Federal banking legislation that put all domestic bank branches ...
  5. Interbank Deposits

    Any deposit that is held by one bank for another bank. In most ...
  6. Inward Arbitrage

    A form of arbitrage involving rearranging a bank's cash by borrowing ...
Related Articles
  1. Options & Futures

    Introduction To Trading Eurodollar Futures

    Introduction to trading eurodollar futures, covering eurodollar time deposits, the history of eurodollars, hedging and speculating with eurodollar futures.
  2. Savings

    Where To Put Your Cash: Call Deposit Vs Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
  3. Investing

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  4. Stock Analysis

    Is It Time To Be Bullish On The Dollar?

    Despite the long-term downward trend of the U.S. dollar, the currency has been getting stronger over the last few months.
  5. Economics

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  6. Investing Basics

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  7. Personal Finance

    The Banking System: Commercial Banking - How Banks Are Regulated

    ByStephen D. Simpson, CFA The 2007-2008 mortgage bubble in the United States, and worldwide credit crisis, highlighted why banks are so heavily regulated; with such a key role in the economy, ...
  8. Insurance

    How the Federal Deposit Insurance Corporation (FDIC) Works

    Learn more about the Federal Deposit Insurance Corporation (FDIC) and what happens to your deposits over $250,000 if a member bank fails.
  9. Savings

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  10. Economics

    What's a Correspondent Bank?

    A correspondent bank is a bank that acts on behalf of another bank, usually a foreign bank.
RELATED FAQS
  1. What are the Federal Reserve's guidelines on demand deposit accounts?

    Read about some of the Federal Reserve's requirements and guidelines regarding the treatment, safeguarding and processing ... Read Answer >>
  2. What is the difference between a demand deposit and a term deposit?

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between these two types ... Read Answer >>
  3. For what types of accounts are demand deposits available?

    Learn about the different types of accounts designated as demand deposit accounts, such as savings accounts and money market ... Read Answer >>
  4. When I exchange foreign currency should I deposit it into a revocable trust or a ...

  5. How does monetary policy affect a bank's deposit multiplier?

    Find out how the Federal Reserve uses monetary policy to impact the deposit money multiplier for American banks, including ... Read Answer >>
  6. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center