EECS 1541 Lecture Notes - Lecture 22: United States Dollar
23 Jun 2018
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EECS 1541 Lecture 22 Notes
Introduction
Money Market Interest Rates among Currencies
The market emerged to accommodate the needs of businesses that were using the U.S.
dollar (and some other foreign currencies) as a medium of exchange for international
trade.
These businesses could not rely on banks in Europe because of the distance and
different time zones.
Today, the Asian money market is centered in Hong Kong and Singapore, where large
banks accept deposits and make loans in various foreign currencies.
The major sources of deposits in this market are MNCs with excess cash and
government agencies.
Manufacturers are major borrowers in this market.
Banks within the Asian money market usually lend to each other when some banks have
excess funds and other banks need more funds.
The Asian money market is integrated with the European money market in that banks in
Asia lend to and borrow from banks in Europe.
The money market interest rates in any particular country depend on the demand for
short-term funds by borrowers relative to the supply of short-term funds provided by
savers.
In general, a country that experiences both a high demand for and a small supply of
short-term funds will have relatively high money market interest rates.
Conversely, a country with both a low demand and a large supply of short-term funds
will have relatively low money market interest rates.
Money market rates tend to be higher in developing countries because they experience
higher rates of growth and so more funds are needed (relative to the available supply)
to finance that growth.
Quoted money market interest rates for various currencies are displayed in Exhibit 3.4.
Document Summary
The market emerged to accommodate the needs of businesses that were using the u. s. dollar (and some other foreign currencies) as a medium of exchange for international trade. Conversely, a country with both a low demand and a large supply of short-term funds will have relatively low money market interest rates. Money market rates tend to be higher in developing countries because they experience higher rates of growth and so more funds are needed (relative to the available supply) to finance that growth. Quoted money market interest rates for various currencies are displayed in exhibit 3. 4. Market emerged to accommodate the needs of businesses that were using the u. s. dollar (and some other foreign currencies) as a medium of exchange for international trade. These businesses could not rely on banks in europe because of the distance and different time zones.
