Globalization of Capital Markets

Question 1

Describe the Eurodollar market (Euromarket).

Answer 1

Eurodollars are U.S. dollars maintained (outside the U.S. Investors holding these Eurodollars offer short-term and intermediate-term loans denominated in the U.S. dollar. These loans are outside the normal banking systems and therefore, generally carry a lower cost of borrowing than conventional bank loans.

Question 2

Identify the potential benefits of international capital markets (as compared with domestic markets) to both lenders and borrowers.

Answer 2

For investors, a greater range of investments is available and an increase in portfolio diversification is possible.
For borrowers, a larger number of funding sources, increased levels of funding, and lower cost of borrowing are possible.