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FRM Part II · FRM Exam Part II · Managing Nondeposit Liabilities

Which feature of Eurodollar deposits is most relevant to a bank treasurer using them as a funding source?

Eurodollars are US dollar deposits held at banks outside the United States. They are mostly large, uninsured wholesale time deposits, so providers are credit-sensitive and can withdraw funding quickly when concerns about the bank emerge, making them a confidence-dependent source.

  1. AThey are US dollar deposits held at banks outside the United States, so they are typically wholesale, uninsured by US deposit insurance and sensitive to credit concernsCorrect
  2. BThey are Euro-denominated deposits issued by US banks
  3. CThey are insured by the US deposit insurer up to standard limits
  4. DThey carry no reserve or credit sensitivity because they are held offshore

Explanation

Eurodollars are dollar-denominated deposits booked outside the US, mostly large wholesale time deposits. They are not covered by US deposit insurance, so depositors are credit-sensitive and may withdraw when concerns arise. The name does not refer to the euro currency.

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