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TOPIC : EUROPEAN SINGLE CURRENCY













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Question 1) What should be the economic advantages for business based in the United
Kingdom, Denmark and Sweden if those countries joined the European single currency?
What would be the disadvantages?
The eleven members of European Union in January 1999 brought the Euro as their single
currency arrangement into theoretical operation. There are many arguments for and against the
topic of Britain joining the Euro Currency and get rid of their own respective currency which is
currently the British Pound. From the point of the view of a single business, the advantages of
joining the European single currency are as follows:
Advantages
There would be a reduction in the uncertainties of the exchange rate for United
Kingdoms business as there would be lesser exchange rate conversions from the Euro
and to the Pound as is the case currently. Thus, the risk of unforeseen currency
fluctuations and that of revaluation and devaluation is reduced.
The businesses can also benefit from the banking policies as they are often required to
taken loans in order to expand or to set up. A European central bank in that case would be
focused on economic conditions across a wider community which would cover a much
wider scope of geographical location (Buckley 2004).
Disadvantages
The currency unions have failed and collapsed in the past. The deflationary monetary
policies with the objective of reducing structural unemployment in the European Union
might not be desirable or feasible or as per the requirements of the Britain economy.
The joining would also result in domestic monetary policy not being able to respond
flexibly to the shocks of the external economic environment. An example is that of a rise


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in the commodity of a price or inflation which is of crucial nature especially for an
individual business (Moosa 2004).
Question 2) On balance should domestic business support the adoption of the single
currency? What, if any, are the economic and political disadvantages of staying out?
The domestic business might lose out on the political and economic influence by not joining in.
The Britain would stand out in shaping the economic integration of the Euro which is
increasingly becoming one of the most used currency used in the world after the strong United
States $ and the Japanese Yen. The United Kingdom and other countries like Sweden and
Denmark are also likely to benefit politically as the joining and single currency would only
benefit and the make the case for Euro to become stronger with involvement from major players
of the globe. The economic benefits for the businesses also include the fact that one country
would no longer be in a competitive rivalry from devaluing the other currency in order to gain
some profit out of it. It would result in a win-win situation for both the economies operating
under a single currency name and system. The national financial market would be integrated in
the mighty Euro zone which can potentially lead to higher allocation of financial resources
within Europe. The development of a single currency would result in higher trade inflows and a
higher rate of capital investment, thus the individual businesses and for the economy as a whole
are likely to be benefitted immensely, if they happen and implement of joining in for the case of
a single currency (Moosa 2004).
Question 3) Outiline the five economic tests laid down by the UK (Labour) Government as
predictions for joining the single currency? Are these tests relevant? Re they currently
being met? To what extent is the decision on whether to join the single currency actually a
political one, rather than just an economic one ?
coordination and well being is well established. The decisions of the European countries are
highly bureaucratic in nature. Thus, it can be said that Britains perspective is economic in nature


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and the Europeans version is much more political in nature. The decision is based upon the
perception of Britain; the offer from the Europe is open as that would only result in strengthening
Portugal, Belgium, Finland, Austria etc constitute the major countries which use Euro as their
official currencies (Jttner 1995).
years. Today, it is predicted to become and counted worlds most used currency in the near
future (Hughes 2002).

Source: (Hughes 2002)
References
Buckley, A 2004, International Debt Instruments, Multinational Finance, Prentice Hall, Essex,
England, Ch. 27, pp. 52448.
Hughes, JE and MacDonald, SB 2002, International Commercial Banking, International
Banking Text and Cases, Addison Wesley, Ch. 4, pp. 88111.


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Jttner, DJ 1995, The Eurocurrency and Interbank Markets, International Finance and Global
Investments, 3rd edn, Addison Wesley Longman, Melbourne, chapters 13 and 14, pp. 24550,
25662, 26573.
Kim, T 1993, International Banking, International Money and Banking, Routledge, London,
Ch. 3, pp. 3640, 42, 448.
Moosa, Imad A 2004, International Finance, 2nd edn, McGraw Hill, Australia, Ch. 9, excluding
Section 9.7; Ch. 10, excluding Section 10.5; Ch. 11.

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