Figure 5.1 portrays the standard re

Figure 5.1 portrays the standard relationship between the U.S. domestic loan and deposit rates and the Euroloan and Eurodeposit rates.
The figure shows that U.S. spreads exceed Eurobank spreads. Eurobanks
are able to offer a lower rate on dollar loans and a higher rate on dollar
deposits than their U.S. competitors. Without these differences the
Eurodollar market would likely not exist, since Eurodollar transactions,
lacking deposit insurance and government supervision, are considered to
be riskier than are domestic dollar transactions in the United States.
This means that with respect to the supply of deposits to Eurobanks, the
U.S. deposit rate provides an interest rate floor for the Eurodeposit rate,
since the supply of deposits to Eurobanks is perfectly elastic at the U.S.
deposit rate (this means that if the Eurodeposit rate fell below this rate,
Eurobanks would have no dollar deposits). With respect to the demand