1. Why must Eurobanks operate with narrower spreads than domestic banks? What would happen if the spreads were equal in both markets?
2. Create an example of $10 million being deposited in the Eurodollar market by a /u.S. manufacturing firm, Motorola.Your example should include at least one interbank transaction before tne dollars are borrowed by a French public utility firm, Paris Electric. How is the gross size of the Eurodollar market affected by your example? What about the net size?
3. Discuss how the Eurobanks can survive when they operate with such a small spread.
4. What could be the risks for depositors if they decide to use the Eurocurrency market for their deposits?
5. What are the IBFs? Why did the Federal Reserve authorize the establishment of the IBFs? Explain.