How the Eurodollar market was created and where it operates? In what currency loans are being granted? Explain

 

Eurodollar was started as a way of US banks helping other countries to recover from the adverse effects of war. It operates outside the US market mostly in Europe hence the term Eurodollar. The loans are given in dollars

The Eurodollar market dates back to the period after World War II. Much of Europe was devastated by the war, and the United States provided funds via the Marshall Plan to rebuild the continent. This led to a wide circulation of dollars overseas, and the development of a separate, less regulated market for the deposit of those funds. Unlike domestic U.S. deposits, the funds are not subject to the Federal Reserve Bank's reserve requirements. They are also not covered by FDIC insurance. This results in higher interest rates for Eurodollars. 

Banks do business with each other, with surplus banks lending to deficit banks, and the rate charged in this interbank market is the London Interbank Offer Rate or LIBOR.

Step-by-step explanation

Eurodollar refers to U.S. dollar-denominated deposits at foreign banks or foreign branches of American banks and by being located outside of the United States, Eurodollars escape regulation by the Federal Reserve Board, including reserve requirements. The banks with surplus funds lend to the deficit banks to resolve the imbalance. The rate of interest charged is LIBOR. The London Interbank Offered Rate (LIBOR) is a benchmark for short-term interest rates at which banks can borrow funds in the London interbank market