The Euro Dollar Since 200325.05.2015
The Eurodollar market was and is still a major global money market. It is one of the most mysterious money markets, and most people usually find it a bit confusing. The Eurodollar market is regulation-free. For this reason, it has expanded significantly as it helps investors avoid the regulatory costs involved.
It is estimated that Eurodollar deposits amounts to approximately 30 billion dollars. Most of the depositors are from the U.S. The Eurodollar market is dominated by major banks in the United States and Europe.
The lack of strict regulations has played a major role in the expansion of the Eurodollar market. Even so, no one can refute the fact that it is still facing some minor challenges. Today, however, Eurodollars have become quite popular amongst international investors who want to benefit from the short-term interest rates.
Since the Eurodollar market has no strict legal requirements, it is ideal for small and middle size businesses. The deposits are usually held in non U.S. banks. The Eurodollar contract gives people control over large amount of money. These contracts usually require low margin contracts, making them ideal for investors and small traders. With a small amount, an investor can trade a regular Euro-dollar contract. It should be noted that these contracts are usually traded on the Chicago Mercantile Exchange (CME). The contracts will need to be settled or renewed once they have expired. The contracts can also be traded through electronic platforms.
It goes without saying that the Eurodollar market has come a long way since 2003. The demand for Eurodollars comes from different sources, including public and private sectors. Most commercial banks all over the world have accepted and implemented dollar deposits and use in domestic and international operations. Billions of Eurodollars were used to finance companies involved in international trade. Firms were interested in Eurodollars due to low interest rates, lack of regulations and convenience of borrowing.
Many countries across Europe and United States have benefited a great deal in the use of Eurodollars for international trading. It should go without saying that most of the money deposited in the Eurodollar market comes from the United States. Ever since the market developed, US banks, especially those with branches in Europe, have been active participants in the Eurodollar market.
Selling dollars for foreign currencies can be profitable for the borrowers or Euro-banks. The Eurodollar operations share lots of similarities with regular foreign exchange operations. The market, therefore, can be regarded as an alternative to regular foreign exchange operations where foreign investors having claims on the U.S. exchange their dollars for other international currencies. Those who want dollars can also buy via foreign exchange.
2003 marked a significant era for the Eurodollar market. It was at this time when Eurodollar market made great strides in the global money market. Ever since then the market have been attracting many investors across the world. Most of the investors came outside of the US and Europe. Many private and commercial banks are in the Eurodollar market. Most of these banks depend on the revenues that they earn from interest rates.
It is worth mentioning that the Eurodollar market has no connection with politics. Private and public sectors alike are allowed to deposit and borrow money from the money market.
As mentioned before, the market in Eurodollars was, and as a matter of fact, is still complicated. It is spread across all the continents of the world. The market has become one of the most essential financial activities in the world today. To begin with, the better part of this money is used to finance imports, exports and other commercial transactions. Unlike in the past, international traders who engage in international trade are no longer restricted.
Some Euro-dollars are also used to finance domestic transactions and international loans. There have been a lot of such transactions in many European countries such as Italy and Germany. In the UK, the money has been converted into sterling pounds. Japan has also been a major player in the Eurodollar market.
Most financial analysts and advisors believe that the Eurodollar market will continue to grow over time. However, in this day and age of economic hardship, there are also lots of uncertainties regarding the future of Eurodollar market. During the global financial crisis that begun in 2008, many companies and financial institutions became bankrupt. So, investors started to look for other alternatives. They discovered that safest way to invest their money was to place then in foreign exchange. This became a blessing to major world currencies especially the US dollar.
With that said, Eurodollar market is not as complex as most people think. Even so, the investor will need to keep an eye on the market trends. Before trading any contracts, it is imperative to find out the condition of the market. Plus, the investor must decide on the amount of money he or she is willing to risk on that investment. If one has a wealth of experience in trading other contracts, he or she will find Eurodollar market to be a cakewalk.
Investors are always advised to wait for the perfect time to trade their Eurodollars. The best time is when there is a change in interest rates. Eurodollars prices are measured in terms of index. Just like other business investments, one can make profits or suffer losses. The contracts are only meant for trading short-term rates in the global market.
Eurodollars is a great way to earn money but chances of losing money are also high. It is imperative for one to gain experience first before entering into the world Eurodollars trade.
In the recent days, people have witnessed the use of Euro-dollars for international trades across the continents. Though there are a number of risks when it comes to this type of trade, there is a good deal of advantages of using Eurodollars. As mentioned earlier, there are no strict regulations and the rates are quite friendly. The market has also proved beneficial to both private and public financial sectors. And lastly, it has boosted international trade. Along with this, Eurodollars market has played a critical role in shaping the world economy.
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