How does the deposit-loan rate spread in the Eurodollar market compare with the deposit-loan rate spread in the domestic U.S. banking system? Why?
Answer: The deposit-loan spread in the Eurodollar market is narrower as compared to in the domestic U.S. banking system. i.e., in the Eurodollar market the deposit rate is greater as compared to the deposit rate of dollars in the U.S. banking system and the lending rate is less. The Eurodollar market can work at a lower cost than can the U.S. banking system as it is not subject to Federal Reserve Bank reserve needs on deposits or FDIC deposit insurance.