Euro Dollar Benefits Effects

Following benefits seem to have accrued to the countries involved in the Euro-dollar market.

1. It has provided a truly international short-term capital market. Owing to high degree of mobility of the euro dollars.

2. Euro- dollars are useful in the financing of foreign trade.

3. It has enabled the financial institutions to have greater flexibility in adjusting their cash and liquidity positions.

4. It has enabled importers and exporters to borrow dollars for financing trade, at cheaper rates than otherwise obtainable.

5. It has helped in reducing the profit margins between deposit rates and lending rates.

6. It has enhanced the quantum of funds available for arbitrage.

7. It has enabled monetary authorities with inadequate reserves to increase their reserves by borrowing Euro-dollar deposits.

8. It has enlarged the facilities available for short term investment.

9. It has caused the levels of national interest rates more akin to international influences.

Effects of euro-dollar market on international financial system

Euro dollar market has affected the international financial system in the following ways.

1. The position of dollar has been strengthened temporarily since its operations of borrowing of dollars have become more profitable rather than its holdings.

2. It facilitates the financing of balance of payments surpluses and deficits especially countries having deficit balance of payments tend to borrow funds from the Euro-dollar market, thereby lightening the pressure of their foreign exchange reserves.

3. It has promoted international monetary cooperation.

4. Over the last decade, the growth of Euro-dollar has helped in easing of the world liquidity problem.

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