Essay about International Finance

2785 Words Oct 19th, 2013 12 Pages
1. Introduction

To understand into the trend of European currency change nowadays, the origins of the Euro (€) had been studied. From the background of Euro, initial idea for the creation of Euro can be trace back to 1979 when European Union (EU) set up European monetary system (EMS). Due to the successful of EMS, the European Union decided to form the Economy and Monetary Union (EMU) to create Euro in December 1991.The main advantages and disadvantages of a single currency for the countries and the zone had been analysis with the macroeconomics knowledge that has learnt from this course. The advantages mainly help to eliminate the floating exchange rate, transaction cost and price transparency, whereas the disadvantages include loss
…show more content…
Under exchange rate, the European monetary system (EMS) was introduced by European central bank and should not devalued euro currency. Lastly, interest rate must be lower than 2%. Those conditions above are applicable for Eurozone members. The major purpose is to stabilise the economy and it makes senses (Eurotrader, 2012).

2.1.1 Advantages and disadvantages
Benefits of the euro
Since the introduction of single currency, Euro, it had brings some positive effects for Eurozone. The most significant impact for Eurozone members can be the exchange rate. Before the single currency, most of the countries manipulate the exchange rate risk. Since the fluctuations of the exchange rate, most member countries are believed faced some difficulties for their own business. However, , member states concentrated on building a 'common market' for trade after switching to single currency. All countries which adopted Euro as same currency will use same currency for their economic activities. Before that, export is discouraged for major countries due to small profit. Hence, according to European Central Bank, it can prove that trade has been increase by the elimination of exchange rate risk. According to European Central Bank, it shows that by a significant increase in trade balance has increased from about 27% of GDP in 1999 to around 32% in addition, exports and imports has increased about 11% from 1999 to 2006. This is due to less

Related Documents