The world of high finance is a complicated place. It’s filled with complicated terminology and even more complicated concepts, all creating a monolithic entity filled with thousands and thousands of moving parts. Most laypeople are quickly overwhelmed by it all, throwing their hands up and leaving it all to the experts.
One of these complicated terms, however, is not so complicated to understand. When it comes to common money market instruments, you’ll find something called “Eurodollars.” Eurodollars are, any type of money that is held outside of the United States, whether it be dollars, yen, yuan, bhat, pesos, or even euros, that is held outside the country of origin. Do you have all of your money in an Australian bank? Those would be Eurodollars – even though Australia is clearly not Europe!
By depositing money into foreign banks, people avoid all the complex regulation that the American government requires of its banks and other financial institutions. Foreign banks, depending on the country, can have much fewer restrictions and prohibitions. What could this mean for you? Bottom line: higher profit margins.
So Eurodollars don’t really have much to do with Europe at all. In fact, they don’t have much to do with dollars at all, either – if a resident of Mexico puts his or her pesos into a Japanese bank they would be called “europesos.” And if a German woman decides to put her euros into a bank registered in the Cayman Islands? She’d be dealing in euroeuros. So “euro” is really just a prefix to imply a national currency held and managed by a bank located in a foreign country.
Some countries are known for their comparatively relaxed financial regulations, making them favorites for foreign investors. These include the Bahamas, Canada, the Cayman Islands, Hong Kong, Japan, the Netherlands Antilles, Panama, and Singapore.
If you’re interested in learning more about Eurodollars, and their pluses and minuses, be sure to sit down with a qualified expert from the financial services industry and go over everything in rigorous detail. The more you know about the world’s financial system the better. After all, it’s your money and your future that’s at stake.