Interest spreads in the eurocurrency market are small for many reasons EXCEPT:
A) Eurocurrency loans are secured loans.
B) Eurocurrency deposits and loans are made in amounts of $500,000 or more on an unsecured basis.
C) The eurocurrency is a wholesale market.
D) Borrowers are usually large corporations or government entities.

Question

Quizplus · Accepted Answer

Eurocurrency loans are generally unsecured loans, not secured loans, so the spread is not small for this reason. The other options all explain reasons why interest spreads in the eurocurrency market are small. B) Because eurocurrency deposits and loans are usually unsecured and made in large amounts, lenders have more confidence in the borrower's ability to repay the loan, which results in smaller interest spreads. C) The eurocurrency market is a wholesale market, meaning it is only available to large institutional investors, which results in smaller spreads. D) Borrowers in the eurocurrency market are typically large corporations or government entities, which have a lower risk of default and higher credit ratings, resulting in smaller interest spreads.

Interest Spreads in the Eurocurrency Market Are Small for Many