The risk of an investment in a Eurodollar deposit is partially due to
A) the fact that these instruments only pay interest at maturity.
B) the fact that the center of the Eurodollar market is in London.
C) the presence of some foreign exchange risk.
D) the fact that the majority of these deposits are not in the form of U.S. dollars.

Question

Quizplus · Accepted Answer

Eurodollar deposits are denominated in U.S. dollars but they are held outside the United States. Therefore, there is a possibility of foreign exchange risk as the exchange rate between the U.S. dollar and the local currency of the country where the deposit is held may fluctuate.

The Risk of an Investment in a Eurodollar Deposit Is