Determinants of Market Condtions in the Euro-Currency Market - Why a 'Borrowers' Market'

The purpose of this paper is analyse the factors that influence conditions in the Euro-currency market, focusing separately on demand and supply factors. The paper tentatively concludes that the main reasons for the present borrowers' market seem to be, first, the turn-round in the US current account, from a large surplus in 1974-76 to an equally large deficit in 1977-78 and, second, a much narrower (or even reversed) interest rate spread in the US financial market. The increased aggressiveness of the banks in their external lending activity seems to have amplified the squeezes on margins, but the effects of the outside factors seem more important than this "endogenous" factor.