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ACCA Applied Skills · Financial Management · The nature and role of money markets

Which of the following best describes the Eurocurrency market?

The Eurocurrency market is the market for deposits and loans in a currency held outside its country of origin, such as US dollars in London. It is largely free of that country's domestic regulation, and the term does not relate only to the euro.

  1. AA market for borrowing and lending a currency outside the country of issue of that currency, free of the domestic regulation of that countryCorrect
  2. BA market where only euro-denominated bonds issued by eurozone governments are traded
  3. CA market operated by the European Central Bank to set short-term interest rates in the eurozone
  4. DA market where companies exchange shares for foreign currency at fixed rates

Explanation

Eurocurrency deposits and loans are denominated in a currency held outside its home country, for example US dollars deposited in London. The market is largely free of domestic reserve and interest controls. The name does not mean the currency is the euro, so the eurozone options are wrong.

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