Eurodollar certificate of deposit, or just Eurodollar CD, is a negotiable dollar-denominated time deposit issued by a U.S. bank located outside the US or by a foreign bank located abroad. It’s the same thing as a domestic CD expect that it’s the liability of a non-US bank. Eurodollars also include dollars deposited in international banking facilities in the US.
Characteristics
Uses
Marketplace
London is the center of the he Eurodollar CD, however, activity also happens in offshore branches. The market is mostly accessible to large institutions. The small investors may access these through money market funds.
Pricing
Eurodollar CDs are priced based on LIBOR. Since they are issued in a foreign country, they are considered slightly riskier compared to the docestic CDs, and therefore offer a higher yield.
Eurodollar CDs are quoted on an actual/360-day basis. The bid/offer quotes are in 16ths (for example, 12 7/16). A bid/offer rates of 10 7/16 and 10 3/16 would roughly translate to a bid interest rate of 10.4375% and an offer rate of 10.1875% percent, respectively, giving the dealer a spread of 25 basis points.
Risks
The key risks include credit risk, sovereign risk, and liquidity risk.
The Eurodollar CDs are not rates, however most issuers issuers are rated by either Thompson Bankwatch (for domestic banks) or IBCA, Ltd. (for foreign banks).