Has the development of the Eurodollar market made it easier or more difficult for the Federal Reserve to control U.S. interest rates?

Category:

Has the development of the Eurodollar market made it easier or more difficult for the Federal Reserve to control U.S. interest rates?

0
0

Has the development of the Eurodollar market made it easier or more difficult for the Federal Reserve to control U.S. interest rates?

Explanation & AnswerSolution by a verified expert

Explanation

A dollar deposited in a bank outside the U.S is referred to as Eurodollar. Most international transactions consider dollar as a medium of exchange.Thus, to make sufficient availability of dollar funds with foreign countries, eurodollar is deposited in their banks.The interest rates on the eurodollar deposits are determined by the respective foreign countries. Though deposited in U.S. currency, the eurodollar is outside the ambit of the U.S. If the interest rates in the U.S. markets are higher than the eurodollar deposit rates, the eurodollars are sent back to the U.S. On the contrary, if the US market rates are lower than the eurodollar deposit rate, more dollars are deposited in foreign banks. As a result, it becomes difficult to protect the U.S. interest rates from those in other parts of the world.
 
Thus, each and every policy of the federal reserve towards interest rates always gets affected by the eurodollars and makes its job of controlling U.S. rates more difficult.

Verified Answer

The development of the Eurodollar market has made it more difficult for the U.S. federal reserve to control the US interest rates.

Purchase this answer to view it. $5
Login/Sign up for free, load your wallet instantly using PayPal or cards and purchase this solution to view it.


Get Help With Your Assignments

Place your order now and get a quality plagiarism-free paper via email.

Write My Paper For Me