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Euro Currency Markets and Global Financing Operations Uses

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Define Euro Currency Markets and explain how they are used in global financing operations. Describe its importance in managing risks.

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Euro currency markets and global financing operation uses are examined.

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Euro Currency Markets:

Euro currency is defined as currency which is deposited by companies and governments in banks that are outside the home market. Dean (2009) defines euro currencies as currency denomination of a bank deposit or loan that is contained in books of a bank located outside the country where the currency originated. Euro currency is applicable to all currencies and also to banks located in any country. Investopedia (2011) provides that euro currency market is a money market whereby euro currency is lent and borrowed by banks in Europe. Euro currency markets constitute banks that make loans and accept deposits in foreign currencies. Euro currency market can also be termed as a market that is denominated in currencies different from domestic currency.

Euro currency markets are advantageous in that they permit convenient borrowing which leads to improvement in international flow of capital during trade. In excess of 70% of world's euro currencies are U.S dollars and the rest in Euros, British pounds, Yen, and Euros (Dean, 2009). Growth in euro currency markets is driven by economics whereby the markets are essential sources of funds and is also viewed as an investment area (Badinger & Breuss, (2009). International Financial Markets (n.d) provides that euro currency markets are effectively organized, efficient and they are very large.

Euro currency markets and global financing operations:

International Financial Markets (n.d) state that the two main instruments used in euro currency market are euro currency deposits and loans. Deposits can further be classified into negotiable certificates or fixed time deposits. Euro currency market is applicable global financing operations and this is because it is an essential means through which demand and supply of bank funds that can be loaned are internationally matched up. One of the ways in which euro currency markets are used in global financing operations is multinationals using the market to hold excess liquidity. Euro currency markets provide a good source for short term loans ...

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