Going Foreign

Whatever the structure of Eurodollar deposits, a major attraction is limited government regulations. Because the deposits are NOT part of the U.S. banking system, they are also NOT under U.S. banking regulations. In particular, banks holding Eurodollar deposits operate under different, usually lower, reserve requirements.

Eurodollar deposits are usually quite large, measured in millions rather than hundreds or thousands. Big money investors circulate the globe with these Eurodollar deposits in search of the best returns.

Because Eurodollars are relatively liquid, but not quite as liquid as savings accounts or money market deposits, they are part of M3 but not part of M2. Eurodollars can be converted to currency or checkable deposits easier than selling off corporate stocks, a factory, or small kitchen appliances, but not quite as easy as transferring funds from savings to checking.

Eurodollars and M3

Other M3 Near Monies

• Institutional Money Market Mutual Funds: These are deposits with nonbank mutual fund companies that are typically owned by institutions (rather than consumers). More specifically they are money market mutual funds with a minimum initial deposit of $50,000.


• Large-Denomination Certificates of Deposit: These are certificates of deposits issued by banks with a minimum deposit of $100,000. Such certificates of deposits also tend to be owned by businesses and other institutions, rather than consumers.


• Repurchase Agreements: These are short-term transactions in which a financial asset is sold, then automatically repurchased after a specified time (often overnight). The difference between the sale price and repurchase price is the interest payment on this short-term loan. Overnight repurchase agreements are commonly used by banks to generate interest on business checking accounts (which cannot legally receive interest payments).