CDs, Eurodollars & Eurobonds

Scope of this section

This section covers:

• Demand deposits
• Certificates of deposit (CDs)
• Jumbo CDs

Bank products

Jumbo CDs — detail

• Minimum denomination of $100,000; $1 million (or more) denominations are common, which puts them out of reach for many retail investors.
• Trade in the secondary market.
• Financial institutions often buy jumbo CDs to park large amounts of cash in a relatively safe vehicle, or they may repackage them into smaller products for retail investors.
• Typical institutional buyers: pension plans, mutual funds, and large financial organizations.
• Because the minimum investment is larger, banks often offer higher rates on jumbo CDs than on traditional CDs.
• Typically short-term, with many maturing within one year (or less) from issuance. Some mature in as little as one week.

📌 Sidenote: Jumbo CDs & FDIC insurance

Brokered CDs — detail

• Available across a wide range of maturities, from as short as one month to as long as 30 years.
• Like jumbo CDs, brokered CDs are negotiable and can be traded in the secondary market before maturity.
• As long as the CD is titled in the customer’s name (which occurs upon purchase), the investor receives FDIC insurance of up to $250,000 per bank.
• 🔑 Advantage: you can spread deposits across multiple banks (often through a single broker-dealer) to increase total FDIC coverage.

Worked example — stacking FDIC coverage To obtain $1 million of FDIC insurance, an investor could buy four $250,000 brokered CDs from four different banks through one brokerage firm. The deposits are fully insured as long as the investor doesn’t exceed $250,000 per bank.

• Because CDs generally expose investors to relatively low risk, they tend to offer relatively low yields (compared to other debt securities). They’re most suitable for investors looking for a safe place to hold cash.

Eurodollar deposits

• The US Dollar is considered the world’s reserve currency, so many goods and services around the world are bought and sold in dollars. As a result, it’s common for US Dollars to be held in foreign countries.
• When a US Dollar is held in an account outside the United States, it’s called a Eurodollar deposit.

Definitions

Eurobonds

A Eurobond is a debt security that pays interest and principal in a denomination other than the currency of the country where it was issued.

Worked example — Eurobond Suppose a Japanese company plans to build a factory in Canada. The company finds there’s Canadian demand for Japanese Yen and decides to issue a Yen-paying bond in Canada to finance the project.

Currency (exchange rate) risk

Canadian investors who buy this bond face currency (exchange rate) risk, which is the potential for loss due to currency conversion.

• If the exchange rate between the Japanese Yen and Canadian Dollars changes, the Canadian investors’ returns (in Canadian Dollars) can change as well.
• The investors receive interest in Japanese Yen over the bond’s life (and principal at maturity), and those Yen will eventually be converted back into Canadian Dollars.
• Currency risk occurs if the Japanese Yen weakens (which is the same as the Canadian Dollar strengthening). The weaker the Yen becomes, the fewer Canadian Dollars the investors receive when they convert the bond proceeds.

To summarize, currency risk occurs when:

*A currency’s strength or weakness is always compared to another currency. For example, the US Dollar is considered strong compared to the Vietnamese Dong. Stating the Dong is weak compared to the US Dollar is saying the same thing.

📌 Sidenote: Spot and forward rate

Two important types of quotes are provided when a currency conversion is considered: the spot and forward price.

Example — forward rate A person might lock in an exchange rate today to convert US Dollars to Euros in four months.

Investors, businesses, and governments use forward prices to hedge (protect) against currency risk. If an exchange rate is locked in today using a forward price, future exchange-rate fluctuations that would otherwise harm the converter are no longer a concern.

Eurodollar bonds

A Eurodollar bond is a specific type of Eurobond that pays US Dollars. More precisely, it’s a debt security that pays interest and principal in US Dollars but is issued outside of the United States.

Because the US Dollar is in global demand, Eurodollar bonds are relatively popular worldwide. They’re issued by many types of organizations, including:

*⚠️ American municipalities have a history of issuing Eurodollar bonds, but the federal government does not. Treasury securities are among the most demanded securities in the world. The US Government (the issuer of Treasuries) offers them at Treasury auctions, which always occur in the United States. In effect, foreign investors must come to the US market to buy them. Therefore, the US Government does not technically issue Eurodollar bonds.

Currency risk by party

📌 Sidenote: Foreign investments & SEC jurisdiction

• Later in this material, you’ll learn about the Securities Act of 1933 and how the Securities and Exchange Commission (SEC) enforces it. As a quick preview, the Act of ‘33 requires issuers to undergo a standardized registration procedure before offering their securities to investors. The SEC-implemented screening process ensures investors are provided with important details and disclosures related to these investments.
• The SEC maintains jurisdiction (enforcement power) over securities offered in the United States. Generally speaking, securities issued outside the US are not subject to rules or requirements imposed by American regulators.
• 🔑 Therefore, Eurobonds and Eurodollar bonds are not subject to SEC registration requirements.
• This gives US corporations another incentive to issue Eurodollar bonds: they can reach a new group of investors while avoiding SEC regulations, potentially saving time and money. Of course, they may still be subject to foreign regulations in the countries where the Eurodollar bonds are issued.

Key points

Demand deposit

• Funds held in a bank account that can be withdrawn anytime

Certificates of deposit (CDs)

• Pay a fixed amount of interest based on principal
• The “bank version” of a bond

Jumbo CDs

• Large bank deposits made for short periods
• $100k minimum denominations
• $1 million denominations are common
• Trade in the secondary market
• FDIC insurance covers up to $250k

FDIC insurance

• Covers up to $250k of bank deposits
• Coverage provided per customer

Brokered CDs

• CDs purchased through broker-dealers
• Offer FDIC insurance up to $250k per bank
• Suitable for investors seeking a short-term safe cash shelter

Eurodollar deposits

• US Dollars held in foreign banks

Reserve currency

• A currency commonly utilized by the world’s central banks and largest financial institutions
• US Dollar is considered the world’s reserve currency

Central bank

• An organization operating as a country’s centralized financial institution

Eurobond

• Debt security paying interest and principal in a denomination other than the currency of the country it was issued in
• Not subject to SEC jurisdiction or registration

Currency (exchange rate) risk

• Risk of loss due to a currency conversion
• Occurs when:
  • Converting into a strong currency
  • Converting out of a weak currency

Spot rate

• Exchange rate for currency exchanged today

Forward rate

• Exchange rate for currency exchange in the future
• Utilized to hedge against currency risk

Eurodollar bonds

• Debt security issued outside of the US that pays interest and principal in US Dollars
• Issued by:
  • US corporations
  • US municipalities
  • Foreign corporations
  • Foreign governments
• No currency risk for US organizations
• Currency risk applies to foreign issuers and investors
• Not subject to SEC jurisdiction or registration

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.