Eurocurrency Terms

Eurocurrency Deposits
Is the generic term describing bank deposits in a currency located outside the border of the country that issues that currency. Despite its name, it is not limited to Europe and should not be confused with the Euro. For example, a deposit denominated in US dollars residing in a Japanese bank is a Eurocurrency deposit, but is specifically called a Eurodollar deposit. A Yen deposit in an Australian bank is a EuroYen deposit. A Euro deposit in Russia is a EuroEuro deposit. A British Pound deposit in Germany is called a EuroSterling deposit, etc.

Eurocurrency deposit rates are invariably higher than rates in their home markets due to several reasons:-

1. Countries usually do not impose a reserve requirement on foreign currency operations. Therefore a bank can lend a higher proportion of these deposits, improving its margin and thus the interest rate it can offer
2. Domestic deposits are insured, with this cost being borne by the depositor through lower rates
3. Investors generally demand higher interest rates due to a higher level of risk on foreign deposits

Eurodollar Deposits
The most common Eurocurrency deposits are denominated in United States dollar at banks outside the United States. As they are not under the jurisdiction of the Federal Reserve, such deposits are subject to much less regulation than similar deposits within the United States, allowing for higher bank margins.

• Asia Dollar
  A term used for Eurodollars held in Asian banks. It is common for companies in Asia to invoice each other in US Dollars, where the proceeds are usually held in local banks.
• PetroDollars
  A term applied to U.S. dollars earned by non-USA countries through the sale of petroleum, which land up in Eurodollar accounts, invariably in the exporter’s country.
  
• PetroEuros
  Iran and Venezuela have pushed to sell oil for Euros like Saddam did before the invasion. Russia is also contemplating the same. This has created a PetroEuro market.