Eurocurrency market characteristics?

• A. Banks hold currency inside the domestic country
• B. It is used mainly for short-term funds but with domestic reserve requirements
• C. It is dominated by retail consumer lending
• D. It is made up of banks holding currency outside the country where it's legal tender and not subject to reserve requirements

Answer: (D)

The essential idea is that the eurocurrency market consists of deposits and loans in currencies that are held outside their country of issue, and therefore outside the regulatory framework and reserve requirements of the home country. Banks take in and lend currencies in international centers where that money is not governed by the home country’s rules. Because these deposits and loans operate outside domestic regulation, they are not tied to the home-country reserve requirements, which is a key feature that sets this market apart from ordinary domestic banking.

This description matches the defining characteristic: banks holding currency outside the country where it is legal tender and not subject to reserve requirements. That combination explains why eurocurrency markets can offer different terms and liquidity compared with domestic markets.

The other descriptions don’t fit as well because they describe activities that aren’t central to eurocurrency markets: domestic holding and regulation, emphasis on retail lending, or the idea that reserve requirements still apply domestically.