Question

What is a Eurodollar instrument? Select one:

a. A financial instrument relevant for both Europe as well as USA

b. None of these

c. US Dollar instrument held in Europe or elsewhere outside USA

d. An instrument purchased in dollars in USA and used in Europe

e. Euro currency instrument held in countries accepting US Dollar as a legal tender

Answer 1

The correct option is Option C: US Dollar instrument held in Europe or elsewhere outside USA

These are US Dollar denominated instruments deposits held in banks outside USA. As, these are not inside US borders, they are subject to lower level of regulation as they don't come under the purview of FED regulations. After world war II, they were exclusively traded in Europe, so they are termed as Eurodollar. As they are not under strict regulation, they generally give higher rate of interest as investors face higher level of risk.