What are Eurodollars?

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What are Eurodollars?

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What are Eurodollars?

Explanation & AnswerSolution by a verified expert

Explanation

Dollar is the leading international currency, and it is used for most of the international transactions. Thus, to make sufficient availability of funds with foreign countries, eurodollar is deposited in their banks. It is outside the ambit of the U.S.A. and thus the U.S.A. cannot regulate the interest rate associated with Eurodollar. The interest rate on the euro dollars is based on the London interbank offer rate (LIBOR). The LIBOR rates vary from country to country depending upon the economic situations. Hence, Eurodollar deposits in different countries earn varied returns. Interest offered on Eurodollar deposits depends on the lending ability of the bank and the rate of return prevailing in the U.S. money markets. Depending on these, Eurodollar is deposited in or sent back to the U.S. to reap higher benefits.
 
Thus a currency will qualify as a euro dollar if it satisfies two conditions. Firstly, the deposit should be in the U.S. dollars. Secondly, the deposit should be outside the USA.

Verified Answer

A Eurodollar is a dollar deposit in a bank, which is outside the U.S.A.

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