Euromarket Deposits And Borrowings

The Eurocurrency market is entirely a wholesale market. Transactions are rarely for less than $1 million and sometimes they are for $100 million. The largest non-banking companies have to deal via banks. Borrowers are the very highest pedigree corporate names carrying the lowest credit risks. The market is telephone linked or telecommunications linked and is focused upon London, which has a share of around one-third of the Eurocurrency market. Commercial banks form the institutional core of the market. Banks enter the Euro-currency market both as depositors and as lenders.  Most deposits in the Eurocurrency market are time deposits at fixed interest rates, usually of short maturity. Many of these deposits are on call; thus they can be withdrawn without notice. Most of the time deposits are made by other banks, but many are made by governments and their central banks as well as multinational corporations.  Deposits come in many forms, besides negotiable Eurodollar certificates of deposit. Floating rate notes (FRNs) have become popular for longer maturity deposits, including floating rate CDs.  Many Eurodollar loans are direct, bank-to-customer credits on the basis of formal lines of credit or customer relationships. The Eurocurrency syndication technique arose principally because of the large size of credits required by some government borrowers and multinational firms. The syndication procedure allows banks to diversify some of the unique sovereign risks that arise in international lending. Syndicated Euroloans involve formal arrangements in which competitively selected lead banks assemble a management group of other banks to underwrite the loan and to market participation in it to other banks. Interest on syndicated loans is usually computed by adding a spread to LIBOR, although the US prime rate is also used as a basis for interest pricing, LIBOR interest rates change continuously, of course. The rate on any particular loan is usually readjusted every three or six months on the prevailing LIBOR rate – this method of pricing is known as a roll-over basis.