Eurodollar Currency - Euro Bonds
U.S dollars held in banks in European countries are known as Eurodollars. The dividend or interest payment on these securities are made using the US dollars on deposit with European banks. There is also a bond market aspect.
The Eurobond market is larger than the U.S Corporate bond market. The Euro Dollar center is in London, where most of the trading is. This bond market is either denominated in U.S dollars or in foreign currencies like the Euro.
Many Eurobonds are Eurodollar bonds.
When a bank in a foreign country accepts U.S. dollars into its bank and
keeps the deposit in U.S. dollars, it is said to be a EURODOLLAR
DEPOSIT. This practice started in European banks, but has since spread to
other major banks around the world as well as foreign branches of U.S.
Eurodollar deposits are
large deposits of U.S. dollars in foreign
depositories. Often, because of the stability of the U.S. dollar, these
deposits are used to fund international foreign trade.
contracts for goods may stipulate that payment is to be made in U.S.
A foreign purchaser may buy a portion of the Eurodollar deposits
held by a bank in the seller’s country
in order to fulfill the terms of the
contract. (Actually, the dollars do not usually leave the bank, but the
ownership of the dollars on deposit
changes through these purchases and
sales.) The deposits may be loaned or used for the purchase of bonds and
other forms of debt. All interest calculations and payments are in U.S. dollars
Some foreign investors prefer Eurodollar issues because the maturities range from 5-10 years which is shorter and they have better bond call protection than many US bonds.
Euro bonds are also not subject to witholding tax on interest earned.
Most Eurodollar bonds are traded in bearer form.
These securities normally pay once per year. US based corporate and agency bonds normally pay semi annually.
Euro dollar bonds do not have to register with the SEC, where corporate securities are not exempt.
Trading - Payments
Companies with offices overseas will use the corporate eurodollar market as well.
Foreign governments can float these bond issues to attract trading investors outside the country who want payment in the international currency - which is american dollars. International agencies can raise funding in the eurodollar market.
The U.S Government does not issue foreign currency or eurodollar bonds. They are issued outside the US and are purchased and traded by people outside the US. Interest payments are made in dollars.
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