Eurodollars refers to the U.S. dollars deposited in banks outside the United States or these are dollars deposited in European banks (Globalization Financial Markets, n.d.). The major sources of the Eurodollars include foreign governments, dollar reserves, oil exporting countries, multinational corporations and business executives with excess cash balance deposits outside the U.S. The users of Eurodollars include commercial banks and governments. Globalization Financial Markets n.d. states that, “many commercial banks have been have been relying mostly on the Eurodollars to make loans to the exporters and importers and domestic companies.”
Eurodollars instruments can be categorized into two: Eurodollar deposits, which can be negotiable certificates of deposits with floating interest rates and specified maturity time and time deposits, which have a maturity time of less than a year or Eurodollar loans, which range from $500,000-$100 million. The later also forms the major source of finance of Eurodollars among all other sources of finance. Globalization Financial Markets n.d. states, “The expansion of Euro dollars is enabled by. private and public depositors keeping their money outside the United States banks and private and public borrowers who take the Euro dollar loans.”
London Interbank Offered Rate (LIBOR) is one of the world’s widely used benchmark for setting short-term interest rates set by sixteen international member banks. The rates were introduced into the financial markets in the year 1986 after two years of conducting test runs. Today, LIBOR rates published by BBA daily places a rough estimate of about $360 trillion rates of financial instruments globally. LIBOR is important, applauded by many participants of the financial markets because it is inclusive, and considers even the less preferred borrowers of money. Either LIBOR has ability to dilute Fed rate cut effects.