EECS 1541 Lecture Notes - Lecture 4: Pound Sterling, Eurodollar
22 Jun 2018
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EECS 1541 Lecture 4 Notes
Introduction
European Money Market
As MNCs expanded their operations in the 1970s, international financial intermediation
emerged to accommodate their needs.
Because the U.S. dollar was widely used even by foreign countries as a medium for
international trade, there was a consistent demand for dollars in Europe and elsewhere.
To conduct international trade with European countries, corporations in the United
States deposited U.S. dollars in European banks.
The banks accepted the deposits because they could then lend the dollars to corporate
customers based in Europe.
These dollar deposits in banks in Europe (and on other continents) are known as
Eurodollars (not to be confused with the euro, which is the currency of many European
countries today).
The growing importance of the Organization of the Petroleum Exporting Countries
(OPEC) also contributed to the growth in Eurodollar deposits.
Because OPEC generally requires payment for oil in dollars, the OPEC countries began to
deposit a portion of their oil revenues in European banks.
These dollar-denominated deposits are sometimes referred to as petrodollars.
Oil revenues deposited in banks have sometimes been lent to oil-importing countries
that are short of cash.
As these countries purchase more oil, funds are again transferred to the oil-exporting
country, which in turn creates new deposits.
This recycling process has been an important source of funds for some countries.
Multinational corporations also use other widely traded currencies (such as the British
pound) in their European transactions, and these other currencies are deposited for the
short term in European banks by some MNCs and then borrowed for short-term periods
by other MNCs.
Document Summary
As mncs expanded their operations in the 1970s, international financial intermediation emerged to accommodate their needs. Because the u. s. dollar was widely used even by foreign countries as a medium for international trade, there was a consistent demand for dollars in europe and elsewhere. This recycling process has been an important source of funds for some countries. The u. s. dollar was widely used even by foreign countries as a medium for international trade. There was a consistent demand for dollars in europe and elsewhere. To conduct international trade with european countries, corporations in the united. The banks accepted the deposits because they could then lend the dollars to corporate customers based in europe. These dollar deposits in banks in europe (and on other continents) are known as. Eurodollars (not to be confused with the euro, which is the currency of many european countries today).
