Question

Discuss one way in which the Euro-currency markets differ from purely domestic markets for borrowing/lending.

Discuss one way in which the Euro-currency markets differ from purely domestic markets for borrowing/lending.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Interest paid on euro currency deposits is higher than paid on domestic deposits because deposit insurance is not available and is not saved by domestic legislation in case of crisis. On the other hand loans are cheaper in this market because there is no deposit insurance premiums paid neither do regulations like Required Reserve ratio apply. Thus investing in them is more beneficial and loans are less costly. This makes this market quite attractive than domestic market. They are also not influenced by domestic political and economic conditions. All these reasons make them attractive relative to domestic market.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume the following information regarding U.S. and European annualized interest rates: ​ Currency Lending Rate Borrowing...
Assume the following information regarding U.S. and European annualized interest rates: ​ Currency Lending Rate Borrowing Rate U.S. Dollar ($) 6.73% 7.20% Euro (€) 6.80% 7.28% ​ Trensor Bank can borrow either $20 million or €20 million. The current spot rate of the euro is $1.13. Furthermore, Trensor Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Trensor Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10...
Q.11 Consider a one year currency swap with quarterly payments. The domestic currency is the U.S...
Q.11 Consider a one year currency swap with quarterly payments. The domestic currency is the U.S dollar and the foreign currency is the Euro. The current exchange rate is $0.86 per euro. Calculate the annualized fixed rates for dollars and euros. The current U.S term structure is the same as in problem 9, Part A. Lo(90)= 0.0656 Lo(180)= 0.0640 Lo(270)= 0.0621 Lo((360)= 0.0599 The Euribor term structure is Lo^euro(90)= 0.0682 Lo^euro(180)= 0.0673 Lo^euro(270)=0.0661 Lo^euro(360)=0.0668 Now move forward 30 days. The...
2. For each of the below scenarios involving the euro and the dollar, one currency has...
2. For each of the below scenarios involving the euro and the dollar, one currency has an increase in supply, the other an increase in demand. Tell which. Be sure to include whether each currency rises or falls in value. More European tourists come to the US for vacations.                                         US interest rates fall significantly. The euro increases in international acceptance as a currency of business. The US economy outperforms most of the developed world.
The Green Bank expects the exchange rate for the euro to depreciate from the spot rate...
The Green Bank expects the exchange rate for the euro to depreciate from the spot rate of $0.15 to $0.14 in 10 days. Green Bank is able to borrow $10 million or 70 million euros. The short term interest rates (annualized) in the interbank market are as follows: CURRENCY LENDING RATE BORROWING RATE U.S Dollars 8% 8.3% Euro 8.5% 8.7% (a)How will the Green Bank attempt to capitalize on this expected change in exchange rate to make a speculative profit?...
Which of these statements is not true regarding operating exposure: Select one: a. The degree of...
Which of these statements is not true regarding operating exposure: Select one: a. The degree of operating exposure will likely be much greater for a firm involved in international business than for a purely domestic firm. b. The impact of a change in the local currency on inflow and outflow variables can sometimes be indirect and therefore different from what is expected. c. All of these statements are true. d. Generally, depreciation of the firm's local currency causes a decrease...
You observe the following market interest rates, for both borrowing and lending: One-year rate = 5%...
You observe the following market interest rates, for both borrowing and lending: One-year rate = 5% Two-year rate = 6% One-year rate one year from now = 7.25% Suppose you borrow $100 for two years, lend the proceeds for one year, and then lend the total interest and principal received for 1 year at the start of year 2 for one year. What is your gain to the nearest cent?
How does a one-way ANOVA hypothesis test differ from a two-way ANOVA hypothesis test? Provide an...
How does a one-way ANOVA hypothesis test differ from a two-way ANOVA hypothesis test? Provide an example of your own of an experiment that would use a two-way ANOVA.
North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange...
North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $1.50 million CD at 4 percent and is planning to fund a loan in British pounds at 6 percent for a 2 percent expected spread. The spot rate of U.S. dollars for British pounds is $1.450/£1. a. However, new information now indicates that the British pound will appreciate such that the spot rate of U.S....
An increase in which of the following factors (from the perspective of the domestic country) would...
An increase in which of the following factors (from the perspective of the domestic country) would cause a depreciation of the domestic currency in the short run? Select one: A. foreign interest rate B. relative price level C. relative export demand D. all of the above
You observe the following market interest rates, for both borrowing and lending: One-year rate = 5%...
You observe the following market interest rates, for both borrowing and lending: One-year rate = 5% two-year rate = 6% one-year rate one year from now = 7.25% How can you take advantage of these rates to earn a riskless profit? Assume that the Pure Expectation Theory for interest rates holds. 2. “If bonds of different maturities are close substitutes, their interest rates are more likely to move together.” Is this statement true, false, or uncertain? Explain your answer.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT