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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.

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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.

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