港大英文课件gcapital.ppt

Secondary Eurodollar Deposit Expansion With the check of $35,000 dollars, Philips may temporarily deposit it into her bank. Just like the case of Daimler-Benz, Eurodollar deposit will be created without affecting the US money supply. What caused the growth of Eurocurrency trading? The growth of world trade Government financial regulations (including taxes) Political considerations The lift of restrictions on capital flow The growth of world trade Volume of world trade grew in the late 1950s. Europeans found it cheaper and more convenient to deal with local banks familiar with their circumstances. Hence, Euro-dollar deposits. Other Euro-currencies deposits also grew as other currencies became more convertible after the late 1950s. Regulations Eurodollar is a response to regulations 1957: at the height of a balance of payments crisis, the British government prohibited British banks from lending pounds to finance non-British trade. British banks began financing the same trade by attracting dollar deposits and lending dollars instead of pounds. British government took a laissez-faire attitude toward foreign currency activities. Hence, London became the leading center of Eurocurrency trading. Chop off my legs and my arms will grow strong. Regulations 1960s: US balance of payment weakens. US imposed new restrictions on capital outflows and US banking regulations. Tax returns from buying foreign assets (buying foreign assets implies an outflow of US dollar) In 1965, “voluntary” guidelines on the amounts US commercial banks could lend abroad, followed by mandatory controls three years later. Since they cannot borrow dollar directly from the US banks, the would-be borrowers located outside US obtain the funds from Eurodollar loans. Regulations 1960s: the Fed’s Regulation Q placed a ceiling on the interest rates US banks could pay on time deposits. To combat inflation, US monetary policy was tightened. Interest rate was above Regulation Q level. To increase the sources