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Eurodollars are U.S. dollars held in time deposit accounts in banks outside the United States. The term was originally applied to U.S. dollar accounts held in banks situated in Europe, but it expanded over the years to cover US dollar accounts held anywhere outside the U.S. Thus, a U.S. dollar-denominated deposit in Tokyo or Beijing would likewise be deemed a Eurodollar deposit (sometimes an Asiadollar). More generally, the euro- prefix can be used to indicate any currency held in a country where it is not the official currency, broadly termed "eurocurrency", for example, Euroyen or even Euroeuro.

Eurodollars have different regulatory requirements that dollars held in U.S. banks. Eurodollars can be riskier than assets held in U.S. banks, which include at least partial deposit insurance, and as a result, demand a higher interest rate.^[1]

The use of Eurodollars has been on a consistent decline.^[2]

There is no connection with the euro currency of the European Union.

History

After World War II, the quantity of physical U.S. dollar banknotes outside the United States increased significantly, as a result of both the dollar funding of the Marshall Plan and from dollar proceeds of European exports to the U.S., which had become the largest consumer market.

As a result, large amounts of U.S. dollar banknotes were in the custody of foreign banks outside the United States. Some foreign countries, including the Soviet Union, also had deposits in U.S. dollars in American banks, evidenced by certificates of deposit. Various narrations are given of the creation of the first eurodollar account, but most trace back to Communist governments keeping dollar deposits abroad.

In one version, the first eurodollar account was created in France in favour of Communist China, which in 1949 managed to move almost all of its U.S. dollar banknotes to the Soviet-owned Banque Commerciale pour l'Europe du Nord in Paris before the United States froze its remaining U.S. situated assets during the Korean War.^[3]

In another version, the first eurodollar account was created by an English bank in favour of the Soviet Union during the Cold War, following the invasion of Hungary in 1956, as the Soviet Union feared that its deposits in North American banks would be frozen as a sanction. It therefore decided to move some of its U.S. dollars held directly in North American banks to the Moscow Narodny Bank, an English limited liability company registered in London in 1919, whose shares were owned by the Soviet Union. The English bank would then re-deposit the dollars into U.S. banks. Thus although in reality the dollars never left North America, there would be no chance of the U.S. confiscating that money, because now it belonged legally to the British bank and not directly to the Soviets, the beneficial owners. Accordingly, on 28 February 1957, the sum of $800,000 was duly transferred, creating the first eurodollars. Initially dubbed "Eurobank dollars" after the bank's telex address, they eventually became known as "eurodollars"^[4] as such deposits were at first held mostly by European banks and financial institutions.^[4] City of London banks, such as Midland Bank, now part of HSBC, and their offshore holding companies^[5] also played a major role in holding the deposits.

In the mid-1950s, Eurodollar trading and its development into a dominant world currency began when the Soviet Union wanted better interest rates on their Eurodollars and convinced an Italian banking cartel to give them more interest than could have been earned if the dollars were deposited in the U.S. The Italian bankers then had to find customers ready to borrow the Soviet dollars and pay above the U.S. legal interest-rate caps for their use, and were able to do so; thus, Eurodollars began to be used increasingly in global finance.^[3]

By the end of 1970, 385 billion eurodollars were held in offshore bank accounts.^[6] These deposits were lent on as U.S. dollar loans to businesses in other countries where interest rates on loans were perhaps much higher in the local currency, and where the businesses were exporting to the U.S. and receiving payment in dollars, thereby avoiding foreign exchange risk on their funding arrangements.

Several factors led eurodollars to overtake certificates of deposit (CDs) issued by U.S. banks as the primary private short-term money market instruments by the 1980s, including:^{[clarification needed]}

The successive balance of payments deficits of the United States, causing a net outflow of dollars;^[7]
Regulation Q, the U.S. Federal Reserve's ceiling on interest payable^[8] on domestic deposits during the high inflation of the 1970s^[9]
Eurodollar deposits were a cheaper source of funds because they were free of reserve requirements and deposit insurance assessments^[9]

Market size

In 1997, nearly 90% of all international loans were made this way.^[10]

In December 1985, the Eurodollar market was estimated by J.P. Morgan & Co. Guaranty bank to have a net size of 1.668 trillion.^[11]

In 2016, the Eurodollar market size was estimated at around 13.833 trillion.^[12]

Eurodollar futures contracts

The Eurodollar futures contract was launched in 1981. It was the first cash-settled futures contract.^[13] It traded on the Chicago Mercantile Exchange.^[14] Eurodollar futures were an instrument used to wager on Federal Reserve policy or to hedge the direction of short-term interest rates. In April 2023, after the Libor scandal, they were eliminated and transitioned to SOFR-based contracts.^[15]^[16]

Sweeps

In United States banking, Eurodollars are used for what are known as "sweeps". Until 21 July 2011, banks were not allowed to pay interest on corporate transactional accounts. To accommodate larger businesses, banks may automatically transfer, or sweep, funds from a corporation's checking account into an overnight investment option to effectively earn interest on those funds. Banks usually allow these funds to be swept either into money market funds, or alternately they may be used for bank funding by transferring to an offshore branch of a bank. Today, commercial banks continue to offer many forms of sweep services which tend to give a higher rate of return whilst smaller entities may use a sweep account simply out of convenience.

References

^ "THE NATURE OF THE EURODOLLAR" (PDF). Federal Reserve Bank of Richmond. 1998.
^ "Who Is Borrowing and Lending in the Eurodollar and Selected Deposit Markets?". Federal Reserve Bank of New York. 13 May 2024.
^ ^a ^b Garson, Barbara (2001). Money Makes the World Go Around. Penguin Books. p. 29. ISBN 0-670-86660-1.
^ ^a ^b "Adam Smith" (George J.W. George) (1982). Paper Money. London: Macdonald & Co. p. 122. ISBN 0-356-08573-2.
^ Schenk, Catherine R. (April 1998). "The Origins of the Eurodollar Market in London: 1955–1963" (PDF). Explorations in Economic History. 35 (2): 221–238. doi:10.1006/exeh.1998.0693.
^ William Brittain-Catlin: Offshore – The Dark Side of the Global Economy; Farrar, Straus and Giroux, 2005, p.8-9
^ Schenk, p.223 "the supply of Eurodollar facilities is interpreted as a response to a demand for a new way to accommodate US$ surpluses"
^ Regulation Q, Schenk, p.222
^ ^a ^b Galen Burghardt (2003). The Eurodollar Futures and Options Handbook. New York: McGraw-Hill. ISBN 0-07-141855-5.
^ Shaxson, Nicholas (2011). Treasure Islands. London: The Bodley Head. ISBN 978-1-84792-110-9.
^ Harold G. Vatter and John F. Walker (editors): History of the U.S. Economy since World War II; Sharpe, 1996.
^ Nedbank (September 2016). "The rise and fall of the eurodollar system" (PDF).
^ Maidenberg, H.J. (14 December 1981). "Commodities; New Eurodollar Market". The New York Times.
^ "Market Begins Trading In Eurodollar Futures". The New York Times. Associated Press. 10 December 1981.
^ Chen, Vivien Lou (14 April 2023). "Goodbye, Eurodollar futures. Here's why the once- dominant derivatives contract is going away". MarketWatch.
^ Stanton, Elizabeth (14 April 2023). "The Once-Mighty Eurodollar Futures Contract Fades Away". Bloomberg News.

[1] "THE NATURE OF THE EURODOLLAR" (PDF). Federal Reserve Bank of Richmond. 1998.

[2] "Who Is Borrowing and Lending in the Eurodollar and Selected Deposit Markets?". Federal Reserve Bank of New York. 13 May 2024.

[Garson_2001-3] Garson, Barbara (2001). Money Makes the World Go Around. Penguin Books. p. 29. ISBN 0-670-86660-1.

[smith-4] "Adam Smith" (George J.W. George) (1982). Paper Money. London: Macdonald & Co. p. 122. ISBN 0-356-08573-2.

[5] Schenk, Catherine R. (April 1998). "The Origins of the Eurodollar Market in London: 1955–1963" (PDF). Explorations in Economic History. 35 (2): 221–238. doi:10.1006/exeh.1998.0693.

[6] William Brittain-Catlin: Offshore – The Dark Side of the Global Economy; Farrar, Straus and Giroux, 2005, p.8-9

[7] Schenk, p.223 "the supply of Eurodollar facilities is interpreted as a response to a demand for a new way to accommodate US$ surpluses"

[8] Regulation Q, Schenk, p.222

[Burghardt-9] Galen Burghardt (2003). The Eurodollar Futures and Options Handbook. New York: McGraw-Hill. ISBN 0-07-141855-5.

[Shaxson-10] Shaxson, Nicholas (2011). Treasure Islands. London: The Bodley Head. ISBN 978-1-84792-110-9.

[11] Harold G. Vatter and John F. Walker (editors): History of the U.S. Economy since World War II; Sharpe, 1996.

[12] Nedbank (September 2016). "The rise and fall of the eurodollar system" (PDF).

[13] Maidenberg, H.J. (14 December 1981). "Commodities; New Eurodollar Market". The New York Times.

[14] "Market Begins Trading In Eurodollar Futures". The New York Times. Associated Press. 10 December 1981.

[15] Chen, Vivien Lou (14 April 2023). "Goodbye, Eurodollar futures. Here's why the once- dominant derivatives contract is going away". MarketWatch.

[16] Stanton, Elizabeth (14 April 2023). "The Once-Mighty Eurodollar Futures Contract Fades Away". Bloomberg News.

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+{{Short description|U.S. dollars held in banks outside the U.S.}}
-'''Eurodollars''' are deposits denominated in [[United States dollar]]s at [[bank]]s outside the [[United States]], and thus are not under the [[jurisdiction]] of the [[Federal Reserve]]. Consequently, such deposits are subject to much less regulation than similar deposits within the United States, allowing for higher margins. There is nothing "European" about Eurodollar deposits; a US dollar-denominated deposit in Tokyo or Caracas would likewise be deemed Eurodollar deposits. Neither is there any connection with the [[euro]] currency.
+{{About|the time deposits|the currency of the European Union|Euro}}
+{{Use dmy dates|date=December 2020}}
-More generally, the "euro" prefix can be used to indicate any currency held in a country where it is not the official currency: for example, '''euroyen''' or even '''euroeuro'''.<ref>[http://www.riskglossary.com/link/eurodollar_deposit.htm Eurodollar Deposit] is an overview article</ref>
+'''Eurodollars''' are [[U.S. dollar]]s held in [[time deposit]] accounts in [[bank]]s outside the [[United States]]. The term was originally applied to U.S. dollar accounts held in banks situated in Europe, but it expanded over the years to cover US dollar accounts held anywhere outside the U.S. Thus, a U.S. dollar-denominated deposit in Tokyo or Beijing would likewise be deemed a Eurodollar deposit (sometimes an '''Asiadollar'''). More generally, the ''euro-'' prefix can be used to indicate any currency held in a country where it is not the official currency, broadly termed "[[eurocurrency]]", for example, '''Euroyen''' or even '''Euroeuro'''.
+Eurodollars have different regulatory requirements that dollars held in U.S. banks. Eurodollars can be riskier than assets held in U.S. banks, which include at least partial deposit insurance, and as a result, demand a higher interest rate.<ref>{{Cite web | url=https://www.richmondfed.org/~/media/richmondfedorg/publications/research/special_reports/instruments_of_the_money_market/pdf/chapter_05.pdf | title=THE NATURE OF THE EURODOLLAR | work=[[Federal Reserve Bank of Richmond]] | year=1998}}</ref>
-==History==
-Gradually, after the [[Second World War]], the amount of [[United States dollar|U.S. dollars]] outside the [[United States]] increased enormously, both as a result of the [[Marshall Plan]] and as a result of imports into the U.S., which had become the largest consuming market after peace was reestablished in [[Europe]].
+The use of Eurodollars has been on a consistent decline.<ref>{{Cite news | url=https://libertystreeteconomics.newyorkfed.org/2024/05/who-is-borrowing-and-lending-in-the-eurodollar-and-selected-deposit-markets/ | title=Who Is Borrowing and Lending in the Eurodollar and Selected Deposit Markets? | work=[[Federal Reserve Bank of New York]] | date=May 13, 2024}}</ref>
-As a result, enormous sums of [[United States dollar|U.S. dollars]] were in custody of foreign banks outside the United States.  Some foreign countries, including the [[Soviet Union]], also had deposits in U.S. dollars in American banks, granted by certificates.
+There is no connection with the [[euro]] currency of the [[European Union]].
-During the [[Cold War]] period, especially after the invasion of [[Hungary]] in 1956, the Soviet Union feared that its deposits in North American banks would be frozen as a retaliation. It decided to move some of its holdings to the Moscow Narodny Bank, a Soviet-owned bank with a [[United Kingdom|British]] charter. The British bank would then deposit that money in the US banks. There would be no chance of confiscating that money, because it belonged to the British bank and not directly to the Soviets. On [[February 28]] [[1957]], the sum of $800,000 was transferred, creating the first eurodollars. Initially dubbed "Eurbank dollars" after the bank's [[telex]] address, they eventually became known as "eurodollars"<ref name="smith">[[George Goodman|"Adam Smith"]], ''Paper Money'', London: Macdonald & Co, 1982, p. 122</ref> as such deposits were at first held mostly by [[Europe]]an banks and [[financial institution]]s.<ref name="smith"/>
+== History ==
-Gradually, as a result of the successive [[Bretton Woods system#The U.S. balance of payments crisis .281958.E2.80.9368.29|commercial deficits]] of the [[United States]], the eurodollar market expanded worldwide.
+After [[World War II]], the quantity of physical [[U.S. dollar]] [[banknote]]s outside the [[United States]] increased significantly, as a result of both the dollar funding of the [[Marshall Plan]] and from dollar proceeds of European exports to the U.S., which had become the largest consumer market.
+As a result, large amounts of U.S. dollar banknotes were in the custody of foreign banks outside the United States. Some foreign countries, including the [[Soviet Union]], also had deposits in U.S. dollars in American banks, evidenced by  certificates of deposit. Various narrations are given of the creation of the first eurodollar account, but most trace back to Communist governments keeping dollar deposits abroad.
-==Eurodollar Futures Contract==
-The Eurodollar futures contract refers to the financial [[futures contract]] based upon these deposits, traded at the [[Chicago Mercantile Exchange]] (CME) in [[Chicago]]. Trading in Eurodollar futures is extensive, thus offering uniquely deep liquidity.  Prices are quite responsive to Fed policy, inflation, and other [[economic indicators]].
+In one version, the first eurodollar account was created in France in favour of [[History of the People's Republic of China|Communist China]], which in 1949 managed to move almost all of its U.S. dollar banknotes to the Soviet-owned [[Banque Commerciale pour l'Europe du Nord – Eurobank|Banque Commerciale pour l'Europe du Nord]] in Paris before the United States froze its remaining U.S. situated assets during the Korean War.<ref name="Garson 2001"/>
-Eurodollar futures are cash-settled, therefore, there is no delivery of a cash instrument upon expiration because cash Eurodollar time deposits are not transferable.
-Eurodollar futures contract size has a principal value of $1,000,000 with a three-month maturity. Eurodollar futures move in 1 point increments, or .01, equaling $25. The Eurodollar tick reflect the dollar value of a 1/100 of one percent change in a $1 million, 90-day deposit, determined by the following equation:
-$1,000,000 notional value x .0001 x 90/360 = $25.
-Trading can also occur in minimum ticks of .0025, or ¼ ticks, representing $6.25 per contract and in .005, or ½ ticks, representing $12.50 per contract. Eurodollar contracts trade Mar, Jun, Sep, Dec; Forty months in the March quarterly cycle, and the four nearest serial contract months. <ref>http://www.tradecenterinc.com/content/trading_markets/futures/Eurodollar_Futures</ref>
+In another version, the first eurodollar account was created by an English bank in favour of the Soviet Union during the [[Cold War]], following the [[Hungarian Revolution of 1956|invasion of Hungary in 1956]], as the Soviet Union feared that its deposits in North American banks would be frozen as a sanction. It therefore decided to move some of its U.S. dollars held directly in North American banks to the [[Moscow Narodny Bank Limited|Moscow Narodny Bank]], an English limited liability company registered in London in 1919, whose shares were owned by the Soviet Union. The English bank would then re-deposit the dollars into U.S. banks. Thus although in reality the dollars never left North America, there would be no chance of the U.S. confiscating that money, because now it belonged legally to the British bank and not directly to the Soviets, the [[beneficial owner]]s. Accordingly, on 28 February 1957, the sum of $800,000 was duly transferred, creating the first eurodollars. Initially dubbed "Eurobank dollars" after the bank's [[Teleprinter|telex]] address, they eventually became known as "eurodollars"<ref name="smith">{{cite book
+|isbn=0-356-08573-2
+|author= "Adam Smith" (George J.W. George)
+|title=Paper Money
+|publisher=Macdonald & Co
+|location=London
+|year=1982
+|pages=122
+|author-link=George Goodman}}</ref> as such deposits were at first held mostly by [[Europe]]an banks and [[financial institution]]s.<ref name="smith"/> [[City of London]] banks, such as [[Midland Bank]], now part of [[HSBC]], and their offshore [[holding company|holding companies]]<ref>{{Cite journal|last=Schenk|first=Catherine R.|date=April 1998|title=The Origins of the Eurodollar Market in London: 1955–1963|url=https://www.sfu.ca/~poitras/EEH_Eurodollar_98.pdf|journal=Explorations in Economic History|volume=35|issue=2|pages=221–238 |doi=10.1006/exeh.1998.0693 }}</ref> also played a major role in holding the deposits.
+In the mid-1950s, Eurodollar trading and its development into a dominant world currency began when the Soviet Union wanted better interest rates on their Eurodollars and convinced an Italian banking cartel to give them more interest than could have been earned if the dollars were deposited in the U.S. The Italian bankers then had to find customers ready to borrow the Soviet dollars and pay above the U.S. legal interest-rate caps for their use, and were able to do so; thus, Eurodollars began to be used increasingly in global finance.<ref name="Garson 2001">{{cite book|last=Garson|first=Barbara|title=Money Makes the World Go Around|year=2001|publisher=Penguin Books|isbn=0-670-86660-1|page=[https://archive.org/details/moneymakesworldg00gars/page/29 29]|url=https://archive.org/details/moneymakesworldg00gars/page/29}}</ref>
-Eurodollar futures prices are determined by the market’s forecast for the delivery month of the 3-month [[London Interbank Offered Rate|LIBOR]] interest rate. If a trader wants to quote a Eurodollar future for some interest rate r, he/she converts 'r' to a price for quoting purposes with
-price = 100 (1 – r)
-   For example, if a Eurodollar future is quoted at 95.00, this corresponds to an interest rate of 5.00%.
- On the expiry day of a contract, the contract is valued using the then fixing of 3-month [[London Interbank Offered Rate|LIBOR]](Spot rate on date of expiry).
+By the end of 1970, 385 billion eurodollars were held in offshore bank accounts.<ref>William Brittain-Catlin: Offshore – The Dark Side of the Global Economy; Farrar, Straus and Giroux, 2005, p.8-9</ref> These deposits were lent on as U.S. dollar loans to businesses in other countries where interest rates on loans were perhaps much higher in the local currency, and where the businesses were exporting to the U.S. and receiving payment in dollars, thereby avoiding [[foreign exchange risk]] on their funding arrangements.
+Several factors led eurodollars to overtake [[Certificate of deposit|certificates of deposit]] (CDs) issued by U.S. banks as the primary private short-term money market instruments by the 1980s, including:{{clarify|April 2022, clarify effects, too vague|date=April 2022}}
-== How it works? ==
+* The successive [[Bretton Woods system#The U.S. balance of payments crisis .281958.E2.80.9368.29|balance of payments deficits]] of the [[United States]], causing a net outflow of dollars;<ref>Schenk, p.223 "the supply of Eurodollar facilities is interpreted as a response to a demand for a new way to accommodate US$ surpluses"</ref>
+* Regulation Q, the U.S. Federal Reserve's ceiling on interest payable<ref>Regulation Q, Schenk, p.222</ref> on domestic deposits during the high inflation of the 1970s<ref name="Burghardt">{{cite book
+|isbn=0-07-141855-5
+|author=Galen Burghardt
+|title=The Eurodollar Futures and Options Handbook
+|publisher=McGraw-Hill
+|location=New York
+|year=2003
+|url=https://archive.org/details/eurodollarfuture0000burg
+}}</ref>
+* Eurodollar deposits were a cheaper source of funds because they were free of reserve requirements and deposit insurance assessments<ref name="Burghardt"/>
+== Market size ==
-For example:
+In 1997, nearly 90% of all international loans were made this way.<ref name="Shaxson">{{cite book| isbn=978-1-84792-110-9| first=Nicholas | last=Shaxson| title=Treasure Islands| publisher=The Bodley Head| location=London| year=2011}}</ref>
-If you are a buyer of a single [[single]] 95.00 quoted contract(anticipated future interest rate is 5%), if
+In December 1985, the Eurodollar market was estimated by [[J.P. Morgan & Co.]] Guaranty bank to have a net size of 1.668 trillion.<ref>Harold G. Vatter and John F. Walker (editors): History of the U.S. Economy since World War II; Sharpe, 1996.</ref>
-'''at expiration - the interest rate has risen to 6.00% '''
-    contract will be quoted at 94.00
-        the buyer compensates the seller 25¢ on each $100 in the $1,000,000 valued contract.
-        You pay $2,500
+In 2016, the Eurodollar market size was estimated at around 13.833 trillion.<ref>{{cite web |url=https://www.nedbank.co.za/content/dam/nedbank-crp/reports/Strategy/NeelsAndMehul/2016/September/TheRiseAndFallOfTheEurodollarSystem_160907.pdf |title=The rise and fall of the eurodollar system |last=Nedbank | date=September 2016}}</ref>
-'''at expiration - the interest rate has fallen to 4.00% '''
-    contract will be quoted at 96.00
-        the seller compensates the buyer 25¢ on each $100 in the $1,000,000 valued contract.
-        You receive $2,500
+==Eurodollar futures contracts ==
+The Eurodollar futures contract was launched in 1981. It was the first cash-settled futures contract.<ref>{{cite news |last1=Maidenberg |first1=H.J. |title=Commodities; New Eurodollar Market |url=https://www.nytimes.com/1981/12/14/business/commodities-new-eurodollar-market.html  |work=[[The New York Times]] |date=14 December 1981}}</ref> It traded on the [[Chicago Mercantile Exchange]].<ref>{{Cite news | url=https://www.nytimes.com/1981/12/10/business/market-begins-trading-in-eurodollar-futures.html | title=Market Begins Trading In Eurodollar Futures | agency=[[Associated Press]] | work=[[The New York Times]] | date=December 10, 1981 | url-access=limited}}</ref> Eurodollar futures were an instrument used to wager on [[Federal Reserve]] policy or to hedge the direction of short-term interest rates. In April 2023, after the [[Libor scandal]], they were eliminated and transitioned to [[SOFR]]-based contracts.<ref>{{Cite news | url=https://www.marketwatch.com/story/goodbye-eurodollar-futures-heres-why-the-once-dominant-derivatives-contract-is-going-away-adc113a2 | title=Goodbye, Eurodollar futures. Here’s why the once- dominant derivatives contract is going away. | first=Vivien Lou | last=Chen | work=[[MarketWatch]] | date=April 14, 2023 | url-access=limited}}</ref><ref>{{Cite news | url=https://www.bloomberg.com/news/articles/2023-04-13/the-once-mighty-eurodollar-futures-contract-will-soon-be-no-more | title=The Once-Mighty Eurodollar Futures Contract Fades Away | first=Elizabeth | last=Stanton | work=[[Bloomberg News]] | date=April 14, 2023 | url-access=subscription}}</ref>
+== Sweeps ==
-In both cases, one percent interest rate change brings both parties $2,500 either win or loss per contract. Hence .01 percent (called 1 [[basis point]]) interest rate change generates $25 win or loss per contract. As we often see in economic news, interest rate always comes in two decimal percentages like 3.75% or 3.50%. And the size of one Eurodollar contract ensures settlement in an integer of dollars.
+{{update|section|date=October 2013}}
+In [[Banking in the United States|United States banking]], Eurodollars are used for what are known as "[[sweep account|sweeps]]". Until 21 July 2011, banks were not allowed to pay interest on corporate [[transactional account]]s. To accommodate larger businesses, banks may automatically transfer, or sweep, funds from a corporation's checking account into an overnight investment option to effectively earn interest on those funds. Banks usually allow these funds to be swept either into [[money market fund]]s, or alternately they may be used for bank funding by transferring to an offshore branch of a bank. Today, commercial banks continue to offer many forms of sweep services which tend to give a higher rate of return whilst smaller entities may use a sweep account simply out of convenience.
+==See also==
+*[[Eurobond (international)|Eurobond]]
-As with other fixed rate instruments, if the yield rises, the price of the futures contract falls, and vice versa. If you believe that interest rates will fall, you would then buy a CME Eurodollar futures contract because you expect the contract price to rise (and vice versa; if you believe rates will rise, you would sell or [[Short_selling|short-sell]] a CME Eurodollar futures contract because you expect the contract price to fall). This retains the normal inverse relationship between the price and the yield of interest rate securities.  However, the [[bond convexity]] is not maintained due to the pricing of the Eurodollar contracts in [[yield (finance)|yield]] terms.
+*[[Petroeuro]]
+*[[Swap (finance)|Swap]]
-quarterly expirations and 4 serial expirations are listed in the Eurodollar contract. <ref name="Eurodollar Contract Specifications">[http://www.cme.com/clearing/clr/spec/contract_specifications_cl.html?product=ED CME Eurodollar Contract Specifications. Accessed 09 December 2007.]</ref>
-This means that on January 1, 2008, the exchange will list 40 quarterly expirations (March, June, September, December for 2008 through 2017), the exchange will also list another four serial (monthly) expirations (January, February, April, May 2008). This extends tradable contracts over ten years, which provides an excellent picture of the shape of the [[yield curve]]. The front month contracts are among the most liquid futures contracts in the world, with liquidity decreasing for the further out contracts. Total [[open interest]] for all contracts is typically over 10 million.
-The CME Eurodollar futures contract is used to hedge [[interest rate swaps]]. There is an [[arbitrage]] relationship between the interest rate swap market, the [[Forward Rate Agreement]] market and the Eurodollar contract. CME Eurodollar futures can be traded by implementing a spread strategy among multiple contracts to take advantage of movements in the forward curve for future pricing of interest rates.
-Eurodollar contracts are extremely popular due to their ability to accurately hedge the mortgage market debt.  The correlation with mortgage market debt is extremely high, higher than the CBOTs Treasury Futures contracts.
-In the past, the minimum price fluctuation of a Eurodollar futures price was 0.01 (for example, a price change from 96.44 to 96.45). A price change of 0.01 is referred to as a  "[[Commodity_tick|tick]]" and represents a change in yield of a [[basis point]]. The exchange has reduced over time the minimum price fluctuation of the contract because of increasing liquidity. As of December 2007, these are 0.0025 (a quarter tick) for the nearest expiring month and 0.005 (a half tick) for all other months.<ref name="Eurodollar Contract Specifications"/> This notation is confusing because strictly one tick is defined as the minimum price fluctuation of a futures contract.
-A tick in CME Eurodollar futures is worth $25.00, based on the $1,000,000 notional value of this contract, as calculated below:
-$1,000,000 notional value x .0001 (one basis point) x 90/360 (three month) deposit period = $25.00.
-==Eurodollar sweeps==
-In United States Banking, eurodollars are a popular option for what are known as "[[sweep account|sweeps]]". By law, banks aren't allowed to pay interest on corporate checking accounts. To accommodate larger businesses, banks may automatically transfer, or sweep, funds from a corporation's checking account into an overnight investment option to effectively earn interest on those funds. Banks usually allow these funds to be swept either into money market mutual funds, or alternately they may be used for bank funding by transferring to an offshore branch of a bank (thus a eurodollar).
-== See also ==
-*[[Swaps]]
-*[[Forward Rate Agreement]]
-*[[LIBOR]]
 *[[TED spread]]
-*[[Eurocurrency]]
-*[[Petroeuro]]
-*[[Eurozone]]
-*[[Currencies related to the euro]]
-* The eurodollar is also a fictional currency used worldwide in the setting of [[Cyberpunk 2020]]
-== References ==
+==References==
 {{Reflist}}
+{{Dollar}}
-==Bibliography==
-* Boberski, David  '''Valuing Fixed Income Futures'''.  1st edition, 2006
-* Ratti, B. '''Comércio Internacional e Câmbio'''. 9ª Edição. São Paulo, Brazil, Edições Aduaneiras, 1997
-* Sandroni, P. '''Novíssimo Dicionário de Economia'''. 5ª Edição. São Paulo, Editora Best Seller, 2000.
-==External links==
-* [http://www.bba.org.uk the British Bankers Association] compiles Libor rates earned on Eurodollars.
-* [http://www.riskglossary.com/link/convexity_bias.htm Convexity bias] is a persistent bias in the pricing of Eurodollar futures relative to the forward market.
-{{dollar}}
-[[Category:Finance terms]]
-[[Category:Basic financial concepts]]
+[[Category:International finance]]
-[[de:Eurodollar]]
+[[Category:Money market instruments]]
-[[fr:Eurodollar]]
-[[id:Eurodolar]]
-[[ja:ユーロカレンシー]]
-[[pt:Eurodólar]]
-[[uk:Євродолари]]

v t e Currencies named dollar or similar
Circulating	Australian dollar Bahamian dollar Barbadian dollar Belize dollar Bermudian dollar Brunei dollar Canadian dollar Cayman Islands dollar Cook Islands dollar Eastern Caribbean dollar Fijian dollar Guyanese dollar Hong Kong dollar Jamaican dollar Kiribati dollar Liberian dollar Namibian dollar New Zealand dollar Samoan tālā Singapore dollar Solomon Islands dollar Surinamese dollar New Taiwan dollar Trinidad and Tobago dollar Tuvaluan dollar United States dollar
Circulating, but renamed	Chinese yuan Ethiopian birr Malaysian ringgit
Defunct	Antigua dollar British Columbia dollar British North Borneo dollar British West Indies dollar Ceylonese rixdollar Confederate States dollar Continental dollar Danish rigsdaler Danish West Indian daler Danish West Indian rigsdaler Dominican dollar Dutch rijksdaalder Greenlandic rigsdaler Grenadian dollar Hawaiian dollar Japanese occupation dollar Kiautschou dollar Malaya and British Borneo dollar Malayan dollar Mauritian dollar Mongolian dollar Nevisian dollar New Brunswick dollar Newfoundland dollar Norwegian rigsdaler Norwegian speciedaler Nova Scotian dollar Penang dollar Prince Edward Island dollar Puerto Rican dollar Rhodesian dollar Saint Kitts dollar Saint Lucia dollar Saint Vincent dollar Sarawak dollar Sierra Leonean dollar Slovenian tolar Spanish dollar Straits dollar Sumatran dollar Swedish riksdaler Old Taiwan dollar Texas dollar Trinidadian dollar Tobagonian dollar Zimbabwean dollar Zimbabwean dollar (2019–2024)
Noncirculating	Niue dollar Pitcairn Islands dollar
Conceptual	Eurodollar Petrodollar International dollar (Geary–Khamis dollar)
Virtual	Linden dollar Project Entropia Dollar
Fictional	Angus Bucks
Private	Calgary dollar Canadian Tire money Disney Dollars Liberty dollar Salt Spring dollar Toronto dollar
See also	Dollar sign Half dollar Quarter dollar Holey dollar Thaler Tolar Trade dollar Zimbabwean bond coins Zimbabwean bond notes