Euro Currency Market 3671n

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M MM OGovernments of all political categorizations OInternational organizations OCentral Banks OCommercial Banks OCorporations

Supply and Demand

dvantages ÿ Increases International liquidity ÿ Expands domestic credit creation ÿ ct as a ǮVehicle currencyǯ For carrying world trade ÿ Globalization increases its importance Disadvantages ÿ ffects international monetary Stability

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apanese Exporter, earning USD, keeps these USD in London Bank (say EX)as Deposit



EX bank may use such deposits for lending to a French Importer



Indian exporter, earning apanese Yen, keeps these Yen in Korea as Deposit

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igerian Importer avails loan in I from ussia to import machinery from India

r Dollar is a leading currency traded in the market

(about 90% to 95% market share) r However other currencies are now emerging thus

reducing the role of dollar somewhat (about 80% market share) Euro apanese Yen Pound Sterling

(fear that its Fx in USD would be blocked) US (indeed blocked identifiable Fx in USD inÕ950, federal eserve ct, regulation ǮQǯ and Ǯǯ; control and restrictions on borrowing funds in US in Õ965, and introduction of interest equalization tax in Õ96) Korea (War broke out in Õ950) ussia (erstwhile USS){because of their banking presence in Paris and London} UK (policy of not granting sterling loan outside sterling area in Õ957)

r China r

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