IBCM
LECTURE
3
15 February
2010
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Guidelines and tips
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Eurocurrency Markets: History, Structure, and Risks, Study Guides, Projects, Research of Finance
This lecture provides an in-depth analysis of eurocurrency markets, their origins, structure, and risks. Eurocurrency markets were a means for offshore financial transactions with minimized regulatory and transactional costs, associated with globalised syndication of loans by banking institutions. The definition, technical aspects, pricing advantages, syndication, risk issues, and the increasing role of the eur in issuance. Additionally, it discusses eu policies affecting these markets and their future.
Typology: Study Guides, Projects, Research
2010/2011
1 / 32
This page cannot be seen from the preview
Don't miss anything!
Related documents
Partial preview of the text
Download Eurocurrency Markets: History, Structure, and Risks and more Study Guides, Projects, Research Finance in PDF only on Docsity!
IBCM
LECTURE
15 February
EUROCURRENCY
MARKETS
y Associated with globalised syndication of loans by banking institutions
y The offshore-onshore differential eroded by increased costs
y Drive for risk-reduction and tax harmonisation may eventually see the end of the Eurocurrency markets
IBCM LECTURE 3: EUROCURRENCY MARKETS
Definition ?
A market for deposits within a regulatory regime different to that applying to deposits in the country
of issue of the currency
IBCM LECTURE 3: EUROCURRENCY MARKETS
“Euro” terminology
Eurocurrency & Eurodollar existed before ECU and then the EUR appeared. But now:
y Onshore EUR rates – EONIA (based on EURIBOR)
y Offshore EUR rates – EURONIA
y Offshore non-EUR rates - LIBOR
blin IFSC)
- Physically- offshore markets which w ere located in centres such as Bahamas, Cayman, Singapore
[extra territorial tax-efficient jurisdictions]
IBCM LECTURE 3: EUROCURRENCY MARKETS
Origins of the market
y Origins in availability of USD short- term deposits outside USA from mid-1950’s
y Banks could hold deposits without influence of US
IBCM LECTURE 3: EUROCURRENCY MARKETS
Additional impetus
y Eurocurrency markets generally exempt from various capital flow and lending restrictions placed by USA, UK and German, for example, in 1960’s and 1970’s
y Benefited from regulatory costs in main onshore centres
y Differential eroding due to supranational regulatory arrangements and greater fiscal cooperation
y Basis point spread above EURIBOR/ LIBOR dependent on risk profile of borrower – e.g. sovereign or corporate
y Fees (front end and recurring) now more important source of income than the spread
IBCM LECTURE 3: EUROCURRENCY MARKETS
Pricing advantage
Eurocurrency instruments have tended to have price advantage over onshore money markets due to:
y No central bank reserve requirements
IBCM LECTURE 3: EUROCURRENCY MARKETS
Syndicatio n
The majority of Eurocurrency loans are
syndicated:
y Diversifies risk
y Lowers costs of due diligence and administration
y Provides greater matching of deposit flows and maturities and thus offers greater flexibility with loans
y Improves negotiating leverage with borrowers