Essay on Foreign Exchange and Economics For Business

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Economics for Business

The Euro is the common currency of the European Monetary Union (EMU). The national currencies of the participating countries were replaced with Euro coins and bills on January 1, 2002. The countries that participate in the Euro Monetary Union (EMU) are Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, and Finland (http://europa.eu.int/eoro/entry.html). These countries irrevocably established the conversion rates between their respective national currencies and the euro and created a monetary union with a single currency, giving birth to the euro. Euro banknotes and coins entered circulation on 1st January 2002.
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The Maastricht Criteria
"The Maastricht Treaty stipulates five criteria that countries must meet to become eligible for the single European currency, the euro. These criteria must be achieved over the year before the date of examination. As membership will be determined in early 1998, the criteria thus apply to 1997. They are as follows:
Price Stability
To qualify, a country's inflation rate must not exceed the average inflation rate of the three best performing Member States by more than 1-1/2 percent. (Inflation is measured by means of the consumer price index.)
Fiscal Prudence
To qualify, a country must not exceed either of the following two reference values relative to its gross domestic product at market prices:
 3 percent for the ratio of the planned or actual government deficit to GDP;
 60 percent for the ratio of government debt to GDP.
Successful EMS Membership
To qualify, a country must have stayed within the normal fluctuation margins provided for by the Exchange Rate Mechanism of the European Monetary System, for at least two years, without devaluing against the currency of any other Member State.
Interest-Rate Convergence
To qualify, the durability of convergence must be reflected in the long-term interest rate levels. A Member State must have had an average nominal long-term interest rate that does not exceed by more than 2

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