A Eurocurrency is a dollar or other freely convertible currency deposited in a bank outside its country of origin. Dollars which are deposit in London become Eurodollars. Eurocurrency market consists of banks called Euro banks that accept deposits and make loan in foreign currencies. There is difference between Eurobond and Eurocurrency market, Eurobonds are which sold outside the countries in whose currencies they are denominated, are issued directly by the final borrowers. The Eurocurrency market enables investors to hold short-term claims on commercial banks, which then act as intermediaries to transform these deposits into long-term claims on final borrowers. Interest rates in the U.S. and Eurodollar markets, for example, can differ only to the extent that additional costs, controls, or risks are associated with moving dollars between New York and London. There will be arbitrage with low cost market and lend that same money back in high return market quickly making profit without being regulated. Since shifting funds from one country to another is very insignificant we have to consider currency control or risk to explain any substantial differences between domestic and external rates. Eurocurrency spreads are narrower than in domestic money markets because of its absence of the previously described regulatory expenses that raise costs and lower returns on domestic transactions. Most borrowers are well known, reducing the cost of information gathering and credit analysis. Eurocurrency deposit rates are higher than domestic rates because they must be higher to attract domestic deposits, they have lower regulatory costs which they can afford to pay higher interest rates. They don’t have cap on how much interest they can give which most countries do which helps them have competitive advantage. Also unlike American banks which have high percentage of deposits in the bank euro banks have larger percentage of deposits which can be lent out.   REFERENCEhttp://www.investopedia.com/terms/e/eurocurrencymarket.asp