Market characteristics

A Eurocurrency is any freely convertible currency, such as a dollar or a pound, deposited in a bank outside its country of origin.Thus, a pound held on deposit with a bank in Paris is a Europound and a dollar held on deposit with a bank in London is a Eurodollar.It is the residency of a bank and not its nationality that determines the “Euro” nature of the deposit so the Euro pound could be held with a Paris branch of a British bank and the Eurodollar could be held with a London branch of a US bank.“Eurocurrency” also refers to this type of deposit held in non-European financial centers, although the term “offshore currency” is sometimes used in its place.

Eurocurrency deposits are typically conventional term deposits of one day to one year’s duration.Conventional term deposits are non-negotiable bank deposits with a fixed term where the interest rate is fixed for the duration of the deposit.In Eurocurrency transactions the currency that is used is always a foreign currency to at least one of the two parties and one of the two parties is always a bank.The other party can be another bank, a central bank, a government or a large corporate entity.In fact, transactions between banks and other financial institutions constitute the core of the Eurocurrency market.This interbank Eurocurrency market is organized as an international over-the-counter market whose members are linked electronically.Access to this market is reserved to top quality institutions.The sums involved are huge, with USD 1 million the usual minimum transaction size.Eurocurrency markets are outside the jurisdiction of any single regulatory authority and interest rates are determined by pure supply and demand.