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M MM
OGovernments of all political categorizations
OInternational organizations
OCentral Banks
OCommercial Banks
OCorporations
Supply and Demand
dvantages
ÿ Increases International liquidity
ÿ Expands domestic credit creation
ÿ ct as a ǮVehicle currencyǯ For carrying world trade
ÿ Globalization increases its importance
Disadvantages
ÿ ffects international monetary Stability
Õ apanese Exporter, earning USD, keeps these USD
in London Bank (say EX)as Deposit

 EX bank may use such deposits for lending to


a French Importer

 Indian exporter, earning apanese Yen, keeps


these Yen in Korea as Deposit

4 igerian Importer avails loan in I from ussia


to import machinery from India
r Dollar is a leading currency traded in the market
(about 90% to 95% market share)

r However other currencies are now emerging thus


reducing the role of dollar somewhat (about 80%
market share)
Euro
apanese Yen
Pound Sterling
r China (fear that its Fx in USD would be
blocked)
r US (indeed blocked identifiable Fx in USD
inÕ950, federal eserve ct, regulation ǮQǯ and
Ǯǯ; control and restrictions on borrowing
funds in US in Õ965, and introduction of
interest equalization tax in Õ96)
r Korea (War broke out in Õ950)
r ussia (erstwhile USS){because of their
banking presence in Paris and London}
r UK (policy of not granting sterling loan outside
sterling area in Õ957)
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