London is a major Eurodollar center because its markets operate during the American and Asian markets. It is one of the world's primary international capital markets. Eurodollar futures are a way for companies and banks to lock in an interest rate today, for money it intends to borrow or lend in the future. Companies use Eurodollars to settle international transactions, invest excess cash, to offer short-term loans and finance imports and exports.
Sure, you may have to strain your ears to understand Singlish in Singapore, and Texans have their own version of most everything, so why not English? And heaven forbid you find yourself in a pub full of drunken Glaswegians.
Still, English is the grease in the cogs of global communications and so it is with dollars in global finance. Dollar deposits in their birthplace US are well, just dollars.
Dollar deposits outside of the US are like Singlish or Ingrish and the dozens of variations across the globe. Just as dollar deposits outside of the US are still dollars.
So eurodollars are essentially all those dollar deposits outside of the US banking system. Today, however, they are dollar deposits in any bank outside of the US.
So dollar deposits in Tokyo, Moscow, and London are all part of the eurodollar system. They are actually even more than simple dollar deposits, which I'll come to in a bit, but I don't want to confuse you with what is an incredibly complex market, so let's do this one step at a time.
You can, for example, have euroeuros or euroyen and these would be euro deposits outside of the EU and euroyen would similarly be yen deposits outside of Japan. In fact, when cash settled eurodollar futures contracts were introduced to the CME in it was immediately the largest trading pit ever.
Our Global Financing System: Think of it as a deposit and loan market for offshore dollars. It affects asset prices because it is the wholesale financing system most used in the world. It is the big Daddy. It is a critical component to how banks fund and manage their liability structures.
It's also worth pointing out that the eurodollar market is almost entirely a cashless market. It is for simplicity sake, banks' balance sheets. Very efficient, close to instantaneous, and, in the case of eurodollars, allows for the tapping of huge pools of capital, which can be freed up for financing.
Why Should I Care? Good question, always worth asking. After all, what good is information you can't or don't execute on?The Eurodollar Market: It All Starts Here This is the first part of a series of articles (I don’t know how many, I’m not done yet) designed to explain what is easily THE most important, albeit poorly understood (even by professionals) market on this ball of dirt.
The Fed monitors and analyzes the Eurodollar market as an important overnight funding market for U.S.-based banks. The Fed has traditionally collected fed funds data from U.S.-based brokers and started collecting Eurodollar data from the same brokers in Active Trader Daily market data and insight for the Individual Active Trader; Cryptocurrency Bitcoin futures and other cryptocurrency products are now available.
Euro-Dollar Market: Euro-dollar market is the creation of the international bankers. It is simply a short-term money market facilitating banks’ borrowings and lendings of U.S.
dollars. The Euro-dollar market is principally located in Europe and basically deals in U.S. dollars. The eurodollar market is the world's largest and most important funding market.
How it functions, how it used to function pre-GFC, and how it has largely broken down since the crisis is key to understanding global capital flows in the financial markets. The eurodollar market is one of the world's primary international capital markets.
They require a steady supply of depositors putting their money into foreign banks.