Eurodollar Creation

Eurodollar Creation -...

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International Financial Management—Hill 2010 Eurodollar Creation Suppose Exxon purchases $1,000,000 of oil from Saudi Oil and pays for it with a check drawn on its CitiBank account in NYC. Saudi Oil now holds a claim on $1,000,000 in $U.S. on a U.S. bank. Suppose Saudi Oil deposits that check—not in CitiBank—but into Bank H (for “hypothetical”), a “Eurobank” in London. How does this transaction create a Eurodollar deposit? Milton Friedman: http://www.chicagobooth.edu/faculty/selectedpapers/sp34.pdf
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Bank H’s Balance Sheet Denominated in $U.S. Before Transaction Cash assets 1,000,000* Deposits 10,000,000 Loan portfolio 7,000,000 Due to other banks 300,000 Bond portfolio 2,500,000 Capital accounts 200,000 Total assets 10,500,000 Total liabilities/equity 10,500,000 Deposit $1,000,000 check Cash assets 2,000,000 Deposits 11,000,000 Loan portfolio 7,000,000 Due to other banks 300,000 Bond portfolio 2,500,000 Capital accounts 200,000 Total assets 11,500,000 Total liabilities/equity
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This note was uploaded on 04/22/2011 for the course BUS M 432 taught by Professor Nedhill during the Winter '11 term at BYU.

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Eurodollar Creation -...

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