Advantages And Disadvantages Of The Euro

The Euro and its Impact on the U.S. Economy The euro is the official currency of the following 12 European nations: Belgium, Germany, Greece, Spain, France, Luxembourg, Ireland, Italy, The Netherlands, Austria, Portugal, and Finland. Although it has been the official currency since January 1,1999 it became physical tender which can be used by all participating countries on January 1,2002. The introduction of the euro into the world was truly a historic event; it represented a unity never before seen in the history of Europe, a common currency. After years of negotiations and much skepticism from around the globe, the implementation of the euro is no longer an abstract ideal, but a change that nations, corporations, and investors must

Exchange rates play a pivotal role in the relationships between individual economies and the global economy. Almost all financial flows are processed through the exchange rate, as a result the movements and fluctuations of the exchange have a significant impact on international competitiveness, trade flows, investment decisions and many other factors within the economy. Due to the increasing globalisation of the world economy, trade and financial flows are becoming more accessible

The euro (€) is the official currency of the Eurozone, which consists of 17 EU member states using this currency. The euro is also the 2nd largest reserve currency as well as the 2nd most traded currency in the world after the United States dollar. As of November 2013, with more than €951 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation in the world, having surpassed the U.S. dollar.

Europe is the second smallest in terms of the continent. It is located in the Northern and Midland hemisphere of the earth. It has an area about 104,98,000 sq.km of the total land. Europe stretches from 35oN to 71oN latitude and 24oW to 65oN longitude. It is surrounded by oceans and seas from three sides. The important attractions of the continent are the longest coastlines among all the continents with oceans, sea, islands, bays, and gulf. Europe, much like the United States, is a free market economy based on the movement of capital. Another way the countries of Europe work together is that many of them have switched to a common currency, called the euro. This makes exchange and trade even easier, and exchange rates are no longer

The euro was originally created based on the belief that single currency will remove the trade barriers between nations, and stimulate growth among nations’ GDP. Since before the creation of euro, countries in Europe were trading with each other. However, throughout history of war and distrust, nations can feel uncomfortable trading with other, and trade barriers were placed. The Steel and Coal tariff was the first to come down after World War II. This allows countries to trade without having to pay tariff over border, but still having to suffer from exchange rate risk. Then came the creation of European Economic Community, and the euro single currency which consequentially removes both the tariff and exchange rate risk. As we know, businesses that export or import good are often exposed to risk of exchange rate fluctuation. Before the euro, the currency hedging was the best protection against these fluctuation. However,

Understanding the relationships among world currencies is vital to successful operations in a global economy. There is money to be made by managers who can effectively manage exchange rates in the course of their business dealings. There is money to be lost by managers who fail to recognize the significance of these rate relationships.

In 1992, twelve countries came together and signed the Maastricht Treaty creating the European Union (Krajewska, 2014, pp. 6-25). The last obstacle that the EU had to face was the different currencies of each country, therefore a decade later on January 1, 1999 the Euro was created. Many countries that adopted the new currency fell within the Euro Area. Each country had to discontinue their old currency and the monetary policies giving control the newly formed European Central Bank (ECB), but each separate country still had their own fiscal policies one of the key reasons for the current debt crisis (Krajewska, 2014, pp. 6-25). The union of multiple countries into a central body seemed to be a wise choice for greater economic growth, but the failure from one country is a failure for all.

A single currency means that currency exchange, and the transaction cost involved, would no longer occur which would save resources (Brothwood, 2002; Huhne, 2001; Johnson, 2000; Lane, 2001; Minford, 2004, 2008; Mulhearn & Vane, 2005). According to the EU (as cited in Minford, 2008), the savings that is realized through the adoption of the euro is around 0.4% of GDP (Johnson, 2000; Minford, 2004, 2008). However, Minford

in the U.S. may benefit by increasing inflation. This is beneficial especially because a dollar that

___ must choose can exchange rate system to determine how prices in the home country currency are converted into prices in another country’s currency (every country)

Following the formation of the Union, in 2002, the Euro replaces all European currencies as the sole monetary value and currency of twelve countries with the exception of Denmark, United Kingdom and Sweden. More and more countries have joined and now there are 28 total.

After the long awaited single currency implementation known as the euro, there have been many ups and downs to this monetary system. Many have been quick to criticize while others still praise its value claiming it will soon be valued strongly against the dollar. Our paper looks into the various aspects of the euro and the progress it has made since its initiation. We begin with a brief history of the euro then move on by raising some questions concerning the effects of the euro on various economic aspects such as competition and global financial institutions. We then provide insight to the various strengths and weaknesses of the euro and the implications this currency has on various institutions such as banks.

When the Eurozone was founded on January 1, 1999, it was with the intention of further integrating and strengthening the nations of Europe, both economically and politically. Until recently, it was believed that the euro provided a stable currency with low inflation and low interest rates and encouraged sound public finance. That the use of a single currency increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy, facilitates international trade, and gives the European Union a more powerful voice in the world. That the size and strength Eurozone would better protect it from external economic shocks, and provide the EU’s citizens a tangible symbol of their European identity, of which they can be increasingly proud as the euro area expands and multiplies these benefits for its existing and future members (European Commission).

The Euro is the commonly accepted currency for 19 of the 27 members of the European Union. It combines members of the European Union by creating the Eurozone, a negotiated partnership that share economic and political beliefs. The agreements made between these countries were expected to have a positive and

The foreign exchange market is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. (wiki.org)