Definition of eurodollars

eurodollars

Dollars held on deposit in a bank outside the United States.

Eurodollars

Deposits denominated in U.S. dollars but held in banks located outside the United States, such as in Canada or France.

Either/or facility

An agreement permitting a bank customer to borrow either domestic dollars from the
bank's head office or eurodollars from one of its foreign branches.

Neutral period

In the Euromarket, a period over which eurodollars are sold is said to be neutral if it does not
start or end on either a Friday or the day before a holiday.

Placement

A bank depositing eurodollars with (selling eurodollars to) another bank is often said to be
making a placement.

Regulation M

Fed regulation currently requiring member banks to hold reserves against their net borrowings
from their foreign branches over a 28-day averaging period. Reg M has also required member banks to hold
reserves against eurodollars lent by their foreign branches to domestic corporations for domestic purposes.

Either-way market

In the interbank Eurodollar deposit market, an either-way market is one in which the bid
and offered rates are identical.

International Banking Facility (IBF)

International Banking facility. A branch that an American bank
establishes in the United States to do Eurocurrency business.

Multi-option financing facility

A syndicated confirmed credit line with attached options.

Note issuance facility (NIF)

An agreement by which a syndicate of banks indicates a willingness to accept
short-term notes from borrowers and resell these notes in the Eurocurrency markets.

Swingline facility

Bank borrowing facility to provide finance while the firm replaces U.S. commercial paper
with eurocommercial paper.

Personal Overdraft Facility

A loan facility on a customers account at a financial institution allowing the customer to overdraw up to a certain agreed limit for an agreed period.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

Agency bank

A form of organization commonly used by foreign banks to enter the U.S. market. An agency
bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.

All or none

Requirement that none of an order be executed unless all of it can be executed at the specified price.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

American Depositary Receipts (ADRs)

Certificates issued by a U.S. depositary bank, representing foreign
shares held by the bank, usually by a branch or correspondent in the country of issue. one ADR may
represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's
are "sponsored," the corporation provides financial information and other assistance to the bank and may
subsidize the administration of the ADRs. "Unsponsored" ADRs do not receive such assistance. ADRs carry
the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American depositary shares(ADSs) are
a similar form of certification.

At-the-money

An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

Back office

Brokerage house clerical operations that support, but do not include, the trading of stocks and
other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory
compliance.
Back-end loan fund
A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from
4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a
designated time, such as one year. The commission decreases the longer the investor holds the shares. The
formal name for the back-end load is the contingent deferred sales charge, or CDSC.

BAN (Bank anticipation notes)

Notes issued by States and municipalities to obtain interim financing for
projects that will eventually be funded long term through the sale of a bond issue.

Bank collection float

The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.

Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

Bank draft

A draft addressed to a bank.

Bank line

Line of credit granted by a bank to a customer.

Bank wire

A computer message system linking major banks. It is used not for effecting payments, but as a
mechanism to advise the receiving bank of some action that has occurred, e.g. the payment by a customer of
funds into that bank's account.

Banker's acceptance

A short-term credit investment created by a non-financial firm and guaranteed by a
bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These
instruments have been a popular investment for money market funds. They are commonly used in
international transactions.

Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.

Bankruptcy

State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
the stockholders to the bondholders.

Bankruptcy cost view

The argument that expected indirect and direct bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.

Bankruptcy view

The argument that expected bankruptcy costs preclude firms from being financed entirely
with debt.

Bond agreement

A contract for privately placed debt.

Borrow

To obtain or receive money on loan with the promise or understanding that it will be repaid.

Borrower fallout

In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
closed will elect to withdraw from the contract.

Bretton Woods Agreement

An agreement signed by the original United Nations members in 1944 that
established the International Monetary Fund (IMF) and the post-World War II international monetary system
of fixed exchange rates.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Cash deficiency agreement

An agreement to invest cash in a project to the extent required to cover any cash
deficiency the project may experience.

Certificate of deposit (CD)

Also called a time deposit, this is a certificate issued by a bank or thrift that
indicates a specified sum of money has been deposited. A CD bears a maturity date and a specified interest
rate, and can be issued in any denomination. The duration can be up to five years.

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.

Concession agreement

An understanding between a company and the host government that specifies the
rules under which the company can operate locally.

Consortium banks

A merchant banking subsidiary set up by several banks that may or may not be of the
same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.

Controlled foreign corporation (CFC)

A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.

Demand deposits

Checking accounts that pay no interest and can be withdrawn upon demand.

Depository transfer check (DTC)

Check made out directly by a local bank to a particular firm or person.

Depository Trust Company (DTC)

DTC is a user-owned securities depository which accepts deposits of
eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in
its custody, and provides for withdrawals of securities from its custody.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Domestic market

Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.

Double-tax agreement

agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.

Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

Electronic depository transfers

The transfer of funds between bank accounts through the Automated
Clearing House (ACH) system.

Eligible bankers' acceptances

In the BA market, an acceptance may be referred to as eligible because it is
acceptable by the Fed as collateral at the discount window and/or because the accepting bank can sell it
without incurring a reserve requirement.

Equity contribution agreement

An agreement to contribute equity to a project under certain specified
conditions.

Eurobank

A bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.

Eurocurrency deposit

A short-term fixed rate time deposit denominated in a currency other than the local
currency (i.e. US$ deposited in a London bank).

European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

Export-Import Bank (Ex-Im Bank)

The U.S. federal government agency that extends trade credits to U.S.
companies to facilitate the financing of U.S. exports.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

Federal Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan banks play a role analogous to that played by the Federal Reserve banks vis-à-vis
member commercial banks.

Fiscal agency agreement

An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as an
agent of the borrower.

Foreign banking market

That portion of domestic bank loans supplied to foreigners for use abroad.

Foreign bond

A bond issued on the domestic capital market of anther company.

Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.

Foreign currency

foreign money.

Foreign currency option

An option that conveys the right to buy or sell a specified amount of foreign
currency at a specified price within a specified time period.

Foreign currency translation

The process of restating foreign currency accounts of subsidiaries into the
reporting currency of the parent company in order to prepare consolidated financial statements.

Foreign direct investment (FDI)

The acquisition abroad of physical assets such as plant and equipment, with
operating control residing in the parent corporation.

Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.

Foreign exchange

Currency from another country.

Foreign exchange controls

Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Foreign exchange dealer

A firm or individual that buys foreign exchange from one party and then sells it to
another party. The dealer makes the difference between the buying and selling prices, or spread.

Foreign exchange risk

The risk that a long or short position in a foreign currency might have to be closed out
at a loss due to an adverse movement in the currency rates.

Foreign exchange swap

An agreement to exchange stipulated amounts of one currency for another currency
at one or more future dates.

Foreign market

Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.

Foreign market beta

A measure of foreign market risk that is derived from the capital asset pricing model.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Forward rate agreement (FRA)

agreement to borrow or lend at a specified future date at an interest rate
that is fixed today.

Gross domestic product (GDP)

The market value of goods and services produced over time including the
income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S.
residents and corporations overseas.

Head & shoulders

In technical analysis, a chart formation in which a stock price reaches a peak and declines,
rises above its former peak and again declines and rises again but not to the second peak and then again
declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical
analysts generally consider a head and shoulders formation to be a very bearish indication.

Hot money

Money that moves across country borders in response to interest rate differences and that moves
away when the interest rate differential disappears.

Interest rate agreement

An agreement whereby one party, for an upfront premium, agrees to compensate the
other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined
level (the strike rate).

International Bank for Reconstruction and Development - IBRD or World Bank

International bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
economic priority.

International Banking Facility (IBF)

International banking Facility. A branch that an American bank
establishes in the United States to do Eurocurrency business.

International Depository Receipt (IDR)

A receipt issued by a bank as evidence of ownership of one or more
shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR
structure is that the corporation does not have to comply with all the regulatory issuing requirements of the
foreign country where the stock is to be traded. The U.S. version of the IDR is the American depository
Receipt (ADR).

International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.

International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

In-the-money

A put option that has a strike price higher than the underlying futures price, or a call option
with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures
contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in-the-money
by $0.50 an ounce.
Related: put.

Investment bank

Financial intermediaries who perform a variety of services, including aiding in the sale of
securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and
institutional clients, and trading for their own accounts. Underwriters.

Law of one price

An economic rule stating that a given security must have the same price regardless of the
means by which one goes about creating that security. This implies that if the payoff of a security can be
synthetically created by a package of other securities, the price of the package and the price of the security
whose payoff it replicates must be equal.

Legal bankruptcy

A legal proceeding for liquidating or reorganizing a business.

Limitation on subsidiary borrowing

A bond covenant that restricts in some way a firm's ability to borrow at
the subsidiary level.

Management/closely held shares

Percentage of shares held by persons closely related to a company, as
defined by the Securities and exchange commission. Part of these percentages often is included in
Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.

MBS Depository

A book-entry depository for GNMA securities. The depository was initially operated by
MBSCC and is currently in the process of becoming a separately incorporated, participant-owned, limitedpurpose
trust company organized under the State of New York banking Law.

Merchant bank

A British term for a bank that specializes not in lending out its own funds, but in providing
various financial services such as accepting bills arising out of trade, underwriting new issues, and providing
advice on acquisitions, mergers, foreign exchange, portfolio management, etc.

Monetary gold

Gold held by governmental authorities as a financial asset.

Monetary policy

Actions taken by the Board of Governors of the Federal Reserve System to influence the
money supply or interest rates.

Monetary / non-monetary method

Under this translation method, monetary items (e.g. cash, accounts
payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g.
inventory, fixed assets, and long-term investments) are translated at historical rates.

Money base

Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.

Money center banks

banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.

Money management

Related: Investment management.

Money manager

Related: Investment manager.

Money market

Money markets are for borrowing and lending money for three years or less. The securities in
a money market can be U.S.government bonds, treasury bills and commercial paper from banks and
companies.

Money market demand account

An account that pays interest based on short-term interest rates.

Money market fund

A mutual fund that invests only in short term securities, such as bankers' acceptances,
commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at
$1. 00. such funds are not federally insured, although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection.

Money market hedge

The use of borrowing and lending transactions in foreign currencies to lock in the
home currency value of a foreign currency transaction.

Money market notes

Publicly traded issues that may be collateralized by mortgages and MBSs.

Money purchase plan

A defined benefit contribution plan in which the participant contributes some part and
the firm contributes at the same or a different rate. Also called and individual account plan.

Money rate of return

Annual money return as a percentage of asset value.

Money supply

M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits.
M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.

Negotiated certificate of deposit

A large-denomination CD, generally $1MM or more, that can be sold but
cannot be cashed in before maturity.

New money

In a Treasury auction, the amount by which the par value of the securities offered exceeds that of
those maturing.

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