Question

If Eurodollar CDs have the highest cost of funds at bank, should they be phased out as a source of funding?

Answer 1

A Eurodollar certificate of deposit (Eurodollar CD) is a negotiable dollar-denominated time deposit issued by a U.S. bank located outside the United States or by a foreign bank located abroad. Primarily they are issued by banks to provide a source of funds to them. If they are issued at highest cost of funds to banks in order to generate funds, they may be avoided to be issued. This is because if banks have to bear a high cost of funds, they will certainly pass such high cost to its lenders thereby reducing the suplly of money in the market. In times, where there arises a situation of inflation i.e. Excess supply of money in market, They may be used to crunch the liquidity and vice versa.