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Multicurrency Options

In: The Medium-Term Loan Market

Author

Listed:
  • J. A. Donaldson

    (Imperial Chemical Industries)

  • T. H. Donaldson

    (Morgan Guaranty Trust Company of New York)

Abstract

Nowadays banks lending in the medium-term eurocurrency market usually offer their customers a multicurrency option under which they undertake to lend, subject to certain qualifications referred to later, any convertible currency. In chapter 4 a description was given of the way in which interest rates are normally set at a margin over LIBOR. The LIBOR rate which applies is that ruling at the time in the eurodeposit market for the currency chosen by the customer. However, the depth of the deposit market varies as between different currencies both in relation to the size of the domestic market and to the stringency of local exchange controls. It is important therefore to understand how banks have ready access to the necessary funds to be able to provide their customers with such flexibility. To this end it is necessary to consider briefly the workings of the foreign exchange market which runs in parallel with the eurocurrency deposit market; indeed so interwoven are the activities of the two markets that in many ways it is simpler to regard them as one.

Suggested Citation

  • J. A. Donaldson & T. H. Donaldson, 1982. "Multicurrency Options," Palgrave Macmillan Books, in: The Medium-Term Loan Market, chapter 6, pages 93-107, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-06242-3_6
    DOI: 10.1007/978-1-349-06242-3_6
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