Euromarkets or offshore markets are credit markets that operate in countries other than those to which the currency in whose currency the transactions are carried out, avoiding all types of control by the national monetary authorities.
The Euromarkets represented a renewal of the international financial markets. These markets allow the circumvention of the jurisdiction of the governments of the countries involved, since it is located in the credit market of a specific currency outside the country to which the currency belongs.
Characteristics of Euromarkets or offshore markets
The qualifier "euro" is applied to these offshore markets because the main banking entities that operate in them are located in the most important financial centers of the old continent.
At its birth, the prefix "euro" was deposited in banks in Europe. Today, that prefix includes any possible destination, although only applied to hard currencies. The existence of a Eurocurrency market means making investment – financing decisions, in different currencies, without the need to operate in different monetary centers.
In practice, they only include hard and convertible currencies, the object of operations outside their issuing country.
Currencies, like other assets, have crossed their traditional borders:
- Bank accounts in different currencies exist in any financial center
- Check can be issued in USD against accounts located in Tokyo
- You can negotiate a loan in euros in Manila …
All these instruments are called deposits and loans in Eurocurrencies or Euro-market currencies. The creation of a deposit in Eurocurrencies arises when a multinational bank accepts a deposit denominated in a currency other than that of the country in which it is located.
For example, a German company sells a car to a US citizen for $ 40,000. Said citizen pays with a check on his Citibank account. The business cashes the check and must decide where to put that money. If you don’t need the dollars, you can keep them in an interest-bearing account. The alternatives are:
- Invest in US Treasury bills
- Buy certificates of deposit issued by USA banks
- Buy a deposit in Eurodollars by depositing the check in a Eurobank
Therefore, Eurodollars are US dollars traded outside the US and their name is due to the fact that a high percentage of these are dollars used as a means of payment in Europe.