Wednesday, September 16, 2009

Accepting Eurocurrency Deposits and making Eurocurrency loans.

International bank accept deposits denominated in currencies other than that of their home country. Thus, London banks will accept deposits denominated in dollars and other major convertible currencies. Eurocurrency deposits are used to pay for goods shipped between countries, as investment vehicles because they pay a competitive rate of return and as a source of loanable funds for banks.
Eurocurrency deposits may be loaned in the interbank market, usually on an unsecured basis, to corporations, governments, and other large wholesale borrowers. The majority of Eurocurrency loans carry floating interest rates based, in most cases, on London Interbank Offer Rate (Known in the trade as LIBOR) for three-month and six-month Eurocurrency deposits. The market for Eurocurrency loans is extremely competitive, with the spread over deposit rates averaging no more than one eighth of 1 percent. Eurocurrency credit normally goes to borrowers with impeccable credit ratings. Often, several multinational banks will spread the risk of international lending by forming a syndicate and jointly participating in single currency loan

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