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Definition: Euro Market
The Euro market is a large market comprising many member nations of EU and facilitates the free movement of goods and services, in other words efficient trade mechanisms such as low tariffs, quotas etc. are put in place and have a centralized monetary policy with most of them using a common currency - Euro. The euro market acts as a major source for international trade.
The Eurocurrency market is largely dominated by the US Dollar (US $) or the Eurodollar. However, during periods of weak dollar (late ‘70s and ‘80s), the Euro Swiss franc and the Euro Deutsche Mark markets rose to prominence. The Eurodollar market began after WW-II in England and France as a counter measure to union of Soviet Bloc countries.
The Eurocurrency market consists of Euro Banks that accepts deposits and offers credit in foreign currencies. Eurocurrency refers to a currency that is freely convertible and is deposited in a bank present in a country where the currency is non-domestic. The bank can be either a foreign bank or a foreign branch of a US domestic bank.
In a Eurocurrency market, commercial banks transform deposits into long term claims on final borrowers by intermediation.
Reasons for the growth of the Euro Market
There are two reasons why Euro currency markets are beneficial to both depositors and the borrowers. Firstly, the depositors receive better interest rates than they can receive otherwise at home. Secondly on the other hand, the borrowers can borrow more, possibly at lower interest rates than they can at home.
Figure-1: Quarterly turnover (Cumulative) of euro-money market (trillion EUROs)