Global Financing and Exchange Rate Mechanisms Paper

Whether the United Kingdom decides to join the European single currency and replace the pound with the euro will have profound economic as well as political effects on the country so is a very important decision and has considerable variations in attitudes towards the topic, although the British public opinion has consistently opposed joining the euro. The euro is currency shared by 18 of the European Union's Member States. The euro was introduced in 1999 and automatically became the new official currency of 11 States, followed by another 7 countries joining to date. However, the UK negotiated an opt-out to from the Treaty meaning they don’t have to adopt the common currency as they fit a certain criteria [1]. Joining the European single currency can have major advantages for the UK, such as diminished uncertainty of exchange rate for businesses and the decreased need to pay transaction costs of changing currencies when abroad. It can also have disadvantages such as loss of domestic monetary policy and variable rate debt in the UK.

The creation of the European Economic Community (EEC) also had effects on the free trade. As European countries began to discuss tariff decreases, the process was also conducted on a product by product basis with lengthy progression. However as European countries began to trade with each other, the aggregate demand for American goods dropped relative to the increase in demand for each other’s goods.

Movement between all of the countries in the EU is totally free and open for all citizens. This opens up numerous more job and education chances for people.

For the countries featured in The European Union, there are several benefits the country and its citizens incur. These include, free mobility between member states as you can work, study and travel wherever you please within the European union. Also, as per occupytheory.org, over 3.5 million jobs have been created for the 320 million European citizens just over the last few years. However, not all their policies are effective as we saw with the common agricultural policy that led to the increase in price and oversupply of goods. Although this is a negative, the European union still manages to maintain integration through the development of deprived regions. This is done by the other member states helping to improve countries which aren’t as developed as them, this is done through the “European Structural Fund”.

Furthermore, as part of the EU, Germany, and her neighbors enjoy the benefits of no tariffs and reductions in nontariff trade barriers. Because there are no customs duties, taxes imposed on imported goods and services, Germany has become more competitive in exporting their products and services internationally. Likewise, reductions in nontariff barriers, such as levies, embargoes, and other restrictions, allow Germany to move their goods and services throughout Europe without restriction. Overall, these removals and reductions have created a level playing field in free trade amongst Germany and her neighbors.

At the same time, Germany benefits through the non-existent risks in exchange rates in the eurozone. The lack of a variability in exchange rates creates more certainty in transacting products within Europe. This leads to the absence of exchange rate losses with various trade partners within the Eurozone, as Table 2 shows that Germany is dependent on a variety of partners from within the Eurozone.

Several sectors of the federal economy have a chance of developing - above all, the already very significant agricultural and services exports. For the agricultural sector, elimination of tariffs is seen as a measure of bringing a balance of advantage to the relationship with the EU. For instance, American apple growers face a duty of 7% for shipping to Europe, while their colleagues from EU have no such obligation. On the services side, the agreement is promising in terms of broadening the customer base for both European and American providers, while simultaneously accelerating information flows. One example may be the opportunity for architecture companies to provide blueprints for European projects in real time. Also all kinds of media artworks will be transmitted online, without necessary export of physical data carries. The option of validating content purchases with electronic signatures will simplify the process for European purchasers. Moreover, the free data flow will help enterprises on both sides of the Atlantic to cooperate more quickly and become more

If white goods companies are importing or exporting goods or resources trade fees and exchange rates are important. Inside the European Union trade is free and no barriers are present. When the pound is strong businesses are able to get more for their money, this is of benefit to large companies like the white goods because not only does it encourage others abroad to invest in the country therefore increasing the strength of the pound it also encourages people to invest into companies therefore increasing revenues. Where the Euro is concerned the value of the pound is much stronger,

Financial markets would get a more integrated outlook, and this would encourage trade flow and investments in the European Union. Finally, apart from fiscal reasons, the euro was also intended to bring about a closer co-operation among the fellow nations, and present a concrete identity for the union of European nations.

The Treaties of Rome which established the European Economic Community in 1957 announced that a Single European Market was the aim of the development which would accelerate prosperity and contribute to a closer union of the European nations. The Single European Act (1986) which launched the European Single Market programme and the Treaty of the European Union is based on this foundation. The treaties lead to the Economic and Monetary Union and are the cornerstones for the coherent currency. The third step towards the EMU began at the 1st January 1999, when the conversion rate was irresistibly locked in. From then on all the member states operated in a unitary monetary policy. The Euro was established as the legal means of payment and at first the eleven national currencies were reduced to subunits of the Euro. Greece joined the Euro system on 1st January 2001 and finally the European paper money and coinage were introduced to the 12 member states of the European Union on 1st January 2002. The introduction of the Euro presents a milestone on the way towards a united Europe in which the people, the public services and the assets have freedom of movement. The member states hoped to gain from the Monetary Union two kind of chances: On one hand it is supposed to present the motor for further political integration in Europe and on the other hand – in addition to the Single Market – it was expected to launch higher

The Unified monetary policy has been considered as the most impressive step into the practical Europeanisation, by which Euro citizens has not only felt the changes in daily life, but potentially internalised the positive concept that being part of EU will bring more happiness to next generations. A continuous debate between convergence and divergence within European continent had remained controversy and unresolved along with several significant agreements made due to the predicted economic advantages, including the boundary breaking-down of tariff and regulations resulting in more convenience for international transactions, and utilising single monetary for saving additional costs of currencies exchanges(Gabel and Palmer, 1995), and so

European monetary union has replaced national currencies with a single currency, the euro to eliminate exchange rate variability among eurozone member countries. The European Central Bank manages the European currency the euro, whose primary objective is price stability, defined in practice as involving inflation less than 2 percent. A series of fiscal rules were (unsuccessfully) adopted to prohibit the bailouts of member states from the eurozone.

In order to prepare for the euro, and once it is in place, Member States need to follow sound economic policies based on low inflation, healthy public finances and stable monetary conditions. These rules of good economic management are the recipe for low interest rates, strong investment growth, and therefore high growth and job creation. Firms across the world - and not just in Europe - will benefit from these improved growth prospects. The strength of Europe as a trade partner will open new prospects for exporters in the rest of the world. Foreign companies especially will benefit, because there will be only one market to penetrate rather than 15. Therefore, the costs of doing business in Europe will go down significantly, fostering competition and lowering prices across the Union.

European Monetary System (EMU) is the arrangement by following which most EU (European Union) nations have connected their currencies to put a stop to great changeability and vacillations relative to one another. It was in 1979 that this system was organized in order to soothe and stabilize the foreign exchange and respond to price increases among member nations. However, sporadic changes not only elevated the values of strong currencies but at the same time, lowered the values of weaker currencies. In order to maintain the currencies within a constricted range, modifications in national interest rates were used in 1986. Later in the earlier phase of 1990s, the conflicting economic policies and conditions of its members sprained the EMU ("European Monetary System," 2009).

Foreign Exchange & foreign currency is the elastic link between various independent political states. The Central Bank of a country frames the monetary policy to maintain a desirable Foreign exchange rate & regulate the flow of foreign currency in an economy.