Outline the major factors that have been responsible for the growth in the
Eurocurrency markets, particularly the Eurodollar component of these markets.
Which of these factors are still significant in fostering the use of these markets
by investors and borrowers?
Under what circumstances would a financial manager of an MNC consider using
Eurocurrency markets? What advantages or special features can these markets
offer compared to borrowing from domestic markets? Are there drawbacks?
Explain.
Is there a multiplier process in the placement of Eurocurrency deposits and
subsequent Eurocurrency loans granted by financial institutions which receive
these deposits? What are the major factors determining the size of the multiplier
coefficient?
There are several methods of measuring the size of the Eurocurrency market.
Comment on this statement and list the reasons for these different measurements.
Why are Eurocurrency deposit rates closely related to rates obtainable on
instruments of corresponding maturity in home money markets? For example,
why is the overnight Eurodollar rate closely aligned to the federal funds rate in
the U.S. money market? Why is the former deposit rate usually (but not always)
higher by some 25 to 50 basis points than the latter?
What is LIBOR? What determines the spread over LIBOR charged borrowers
for Eurocurrency credits and loans?
Discuss the major advantages which the syndicated Eurocurrency loan market
offers to lenders and borrowers, compared to domestic lending operations. Why
is the quoted rate (spread over LIBOR) not an accurate indicator of the cost of a
typical syndicated Eurocurrency loan?
List the major factors that are responsible for the growth of the international
bond market. Indicate which of these factors (or other considerations) explain
the large number of innovations in this market.
Distinguish between a Eurobond and a foreign bond. List the major participants
in this market. Why does the share of developing countries in this market
remain fairly modest?
Define (a) a multiple-currency Eurobond, (b) a dual – currency convertible bond,
and (c) a floating-rate Eurocurrency note. Explain in each case the distribution
of risk (the exchange rate risk or the interest rate risk) between the lender
(investor) and the borrower (issuer).
How do you explain the yield differentials among Eurobonds dominated in
different currencies? Does interest parity operate in the capital market (as it does
in the international money market) to eliminate these differentials on a covered
basis? Do you except an alignment between the yield on a Eurodollar bond and a
dollar bond of the same risk grade and maturity?
