The term”euromarket” can have two distinct definitions:
- In the realm of finance, it’s an exchange market that deals in eurocurrencies They are all currencies stored as deposit by businesses or individuals who are not in the country of origin.
- In the field of commerce, it refers to the market in the European Union (EU) where products and services can be free to trade between members and that have an agreed-upon trade policy with non-EU nations.
Understanding the Euromarket
A term called a euromarket is used to refer to the market for financial instruments like eurocurrencies. A eurocurrency can be defined as any currency that is traded or held outside the country in which it was issued. For instance an eurosdollar is a deposit of a dollar that is traded or held outside of the U.S. One key reason for the growth and existence of this market is that it is not impacted from the regulatory framework (and often, political or other specific risks to the country) that is the “home” country.
The “eurothe” prefix used in the phrase originated because at first, these currencies were issued in Europe but this is not the scenario, and a currency called the eurocurrency is now used anyplace in the world where local banking regulations allow. The market for eurocurrency has become an important source of financing for international trade because of the it being easy to convert and due to the absence of restrictions in countries regarding trading.
Euromarket is an instance of the Single Market of the EU
The term is also employed to mean the common market in the European Union. The creation of the single market was through the removal of any limitations on movement products and services (as as well as individuals) between the countries that are members in the EU. It is described by the European Commission describes the single market as “one area without internal borders or other restrictions on the free movement of products and services. “2
The ease of movement of services and goods across borders is a boon for businesses to work across borders. It’s intended to boost efficiency, boost trade and boost growth, while aiding in achieving the goal of greater political Integration between EU members. It is important to note that the majority however, not all EU members EU adopt the euro currency as their own currency. Hence, it is not the same as having a Eurozone (which is the term used to describe countries which adopt the euro as part of the form of a common monetary union) is not the same as the euro market.
Let’s take a look at an hypothetical scenario where Bank A is based in France while Bank B is based in the United States. Bank A is planning to provide some massive loans to a customer of theirs. They’ve decided that they will be able make more money by borrowing funds from Bank B – in US dollars, and then loaned it to their customer.
Bank B makes interest from the loan they provide for Bank A, whereas Bank A profit from the differences in terms of the loan offered to those offered to their clients and terms provided by Bank B. Although , in the ideal scenario, Bank A might do this for free in order to satisfy their customer however, it is more frequently the case that they utilize euro currency to profit from an interest rate divergence.