Most investors, including those holding bank CDs and money market accounts, are concerned about the market conditions in the U.S. It has now become equally important to keep and eye on bank rates and financial activities around the world.

The increasing complexity of global financial markets combined with ever-increasing linkages between national markets through trade, finance, and direct investment have led to bank balance sheets have evolved significantly as a result of increased international activities.

The U.S. financial services industry and financial markets are highly developed. In recent decades, many new products and services have been created, as well as new financial instruments and institutions. Today, in addition to banks, there are several other important types of financial intermediaries. These include savings institutions, credit unions, insurance companies, mutual funds, pension funds, finance companies, and real estate investment trusts.

U.S. market interest rates, including the interest rates offered on bank CDs, money market accounts and savings accounts, have become more complex and dynamic as world markets grow larger and the institutions offering these products become more complex. International market forces now have a rather measurable contribution in the determination of U.S. bank interest rates. The Federal Reserve conducts several significant activities in the international arena. Central banks, foreign governments and official international institutions, such as the International Monetary Fund utilize the wide range of international bank services provided through the Federal Reserve. The services the Fed provides in international banking and interest rate activities to international customers include: maintaining checking accounts, investing funds, executing foreign exchange operations and holding assets for safekeeping. The Federal Reserve Bank holdings of foreign-owned gold that is stored in the gold vault at the Federal Reserve Bank of New York constitutes the world’s largest known concentration of monetary gold.

Changes in public policies or in economic conditions abroad and movements in international variables that affect the U.S. economy, such as exchange rates, must be factored into the determination of U.S. monetary policy. An increase in interest rates in a foreign country could raise worldwide demand for assets denominated in that country’s currency and thereby reduce the dollar’s value in terms of that currency.

International banking institutions have become a very valuable channel for capital flows into and out of the United States. The Federal Reserve is interested in the international activities of banks because of the increased importance of capital flows as well as its role as bank supervisor. International banking flows and activities are guided by factors such as the business needs of customers, the scope of operations permitted by a country’s legal and regulatory framework, and tax considerations. These activities are often close substitutes for U.S. domestic banking activities in lending and deposit formations. The Federal Reserve monitors international bank lending and savings actions to help interpret U.S. monetary and credit conditions.

The international activities of U.S. chartered banks include lending to and accepting deposits from foreign customers at the banks’ U.S. offices. The greater part of the international business of U.S. chartered banks takes place at their branch offices located abroad and at their foreign incorporated subsidiaries, usually wholly owned. Much of the activity of foreign branches and subsidiaries of U.S. banks has been Eurocurrency that is, taking deposits and lending in currencies other than that of the country in which the banking office is located. Because they are close substitutes for deposits at domestic banks, Eurodollar deposits of nonbank U.S. entities at foreign branches of U.S. banks.

Banks in the Eurodollar market compete with banks in the United States to attract dollar-denominated funds. The overwhelming majority of money in the Eurodollar market is held in fixed-rate time deposits (TDs). The maturities range from overnight to several years, although most are from one week to six months. Eurodollar deposits dollar deposits in banking offices outside the United States. Eurodollar CDs are offered by the foreign branches of U.S. banks. The term can also apply to foreign branches of foreign banks; many are considered safer than some U.S. banks. a Eurodollar CD is a negotiable receipt for a dollar deposit at a bank located outside the United States.

The average Eurodollar deposit is very large, often in the 100’s of thousands or even millions, and has a maturity of less than six months. A variation on the Eurodollar time deposit is the Eurodollar certificate of deposit. A Eurodollar CD is basically the same as a domestic CD, except that it’s the liability of a non-U.S. bank. Because Eurodollar CDs are typically less liquid, they tend to offer higher yields.

International banking by both U.S.-based and foreign banks facilitates the holding of Eurodollar deposits. Similarly, Eurodollar loans, dollar loans from banking offices outside the United States, can be an important source of credit for U.S. companies including banks and non-bank financial institutions.

Tags: , , , ,

No user commented in " Impact of International Markets "

Follow-up comment rss or Leave a Trackback

Leave A Reply

 Username (*required)

 Email Address (*private)

 Website (*optional)