...A Study of the Benefits and Costs which Might Result for UK-based Firms Should the UK Adopt the Euro Name: Louise Tibagalika Module: The Global Business Environment Tutor: Phil Johnson Submission Date: 10th February 2014 Academic Integrity Statement: I have read and understood the Academic Integrity guidelines for Kaplan Open Learning and the University Of Essex, and declare that this assignment conforms to all of the rules and regulations contained therein. Please note: the guidelines can be found in the Student Handbook (see section 6.4). Introduction The euro is the single currency established in 1999, currently shared by 18 countries of the European Union’s Member States (Ec.europa.eu, 2014). Due to the number of advantages such as the stimulation of trade and disadvantages such as economic instability, the decision for the UK to adopt the euro is a big economic and political debate at present which will affect businesses and the public in many ways. The following report will look at the advantages and disadvantages for businesses and answer the question as to whether the UK government should proceed with the decision. Objectives * Assess the benefits of the UK adopting the EURO * Assess the drawbacks associated with the UK adopting the EURO * How businesses can utilise these benefits and survive in the international market * Look at the political, economic, social and environmental factors * Provide workplace and personal experience...
Words: 2433 - Pages: 10
...Eurozone countries, European tourists can bring more spending power into the UK as mentioned in extract D and in a time of recession, strength seems to come in numbers. Hence the UK could benefit from an adoption of the Euro. The most controversial issue is that the European Central Bank (ECB) will take over monetary policy if the UK were to join the 17-countries strong zone. The problem with this is the ‘one size doesn’t fit all’ dilemma that would make British interest rates the same as the Eurozone, by increasing it to ensure a low inflation rate, which is a priority in the ECB. Arguably, in the UK, this is at the expense of promoting economic growth and spending since the Bank of England tolerates a higher rate of inflation of 2% with a margin of ¬¬+- 1% because their priority is to avoid a double-dip recession. The interest rates in interest would cause a decrease in the marginal propensity to consume as well as increase loan debts, shown in the diagram with an inward shift in AD, as consumption and investment falls. Although there is also a decrease in Imports, it is marginally smaller than consumption (that accounts for 65% of Aggregate Demand). This leads to a fall in Real National Output, which accounts for growth as well as the price level. On the other hand, the UK could benefit from the European Single Market, since the Treasury’s official assessment of its five economic tests acknowledged that EMU membership for the UK could enhance productivity by increasing...
Words: 796 - Pages: 4
...The Eurozone is the economic region formed by those member counties of the European Union that have adopted the euro. This means that it is the currency used by the majority of countries within the EU. Firstly, I believe the decision by the British Government not to join the European Single Currency was a good decision because joining the Euro poses a variety of threats and uncertainties to the UK. I think that the UK should have control over its own economy to help benefit and most importantly protect its individuals and businesses. My main argument for this is that the UK housing market is one of the core markets in the UK that provides a huge turnover for the economy and can impact it with the slightest change. The UK’s economy is very sensitive to the interest rates and this means that small change in the interest rates can impact a large number of individual and businesses mortgages as they have high variable rates. Basically, a small increase in interest rates has a large impact on consumer spending and therefore if the UK’s interest rates were to be decided by the ECB (European Central Bank) this could heavily damage the UK economy. There is no devaluation., this means that the euro cannot become devalued if the currency becomes uncompetitive and this has been proved by significant problems such as Spain, Italy and Greece who’s all economies had a catastrophic crash. This is has been shown in large current account deficits in the southern EU countries. In contrast to...
Words: 548 - Pages: 3
...Does the current institutional framework of the Euro-zone favour the maintenance of macroeconomic stability in that area? The Euro-zone is an economic and monetary union that currently has 17 members. These 17 members have established the Euro as their official currency, which has as main consequence that the monetary policies are under the command of the European Central Bank. The main advantage of this is that they have a fixed exchange rate, so they don´t have to face the international volatility of the currency market. However as their monetary policies depend on the European Central Bank, loosing effectiveness in their own fiscal and monetary policies, making it harder to face economic crises, especially when you have a weak economic framework, which was the case of Spain. If all the economies where homogeneous then it would be easier to apply the policies, but as each member is very different we have a problem due to the macroeconomic disparity among the members. If the recession occurs at the same time, it is easier to develop the monetary policies, and even if in some countries there is recession and in others not, the asymmetry can be accommodated through the members, however due to the huge disparities among countries it is not that easy. The recent crises have increased the awareness of the huge disparities that we can find in the members. These differences, which relays on the diversity of the members, have risen the question of the viability of the Eurozone...
Words: 1946 - Pages: 8
...“Euro: A common currency used by many European countries. The euro was established in 1999 when 11 European countries adopted a common currency in order to facilitate global trade and encourage the integration of markets across national borders. Euro banknotes and coins began circulating in January 2002.” (The Financial Dictionary) “The euro was introduced in 1999 and became the official currency of participating nations in 2002. It was intended to remove the exchange rate risk of businesses participating in the EU's common market and free trade association. It has become one of the world's most important currencies. Proponents of the euro state that it is more valuable than the former currencies, while opponents say that it has made goods and services in their home countries more expensive. The euro's ISO 4217 code is EUR.” (The Financial Dictionary) According to the European Commission Euro currency, the euro is currently the single form of money shared by 17 of the European Union’s Member States, this makes up the euro area. The euro was introduced in 1999 and was a major leading step in European integration. The euro has many major benefits; some of these are the sharing of a common euro currency which is enabling the less expensive and simpler inter-nation trading. This common currency also allows less fluctuations and a lesser risk. In Global terms the U.S. dollar is the leading currency and now the euro is the second most important with the Sterling British...
Words: 1490 - Pages: 6
... using the Euro as a functional currency. Contents Contents 2 1. EXECUTIVE SUMMARY 3 2. INTRODUCTION 3 2.1. HISTORY OF INSOMNIA PLC 3 2.2. SCOPE OF BUSINESS 3 2.3. CURRENT EXPOSURES 4 2.3.1. TRANSACTION EXPOSURE 4 2.3.2. ECONOMIC EXPOSURE 4 2.3.3. TRANSLATION EXPOSURE 4 2.4. HEDGING 5 3. EFFECTS OF UK JOINING EMU ON INSOMNIA PLC 5 3.1. COST SAVINGS ON CROSS-BORDER TRANSACTIONS 5 3.2. STABILITY OF PRICES 6 3.3. PRICE TRANSPARENCY 6 3.4. OTHER EFFECTS 6 4. USING EURO AS A FUNCTIONAL CURRENCY OF INSOMNIA PLC 7 5. CONCLUSION 8 6. BIBLIOGRAPHY 9 1. EXECUTIVE SUMMARY It has been found that UK joining EMU as well as accepting the Euro as a functional currency will bring more benefits to Insomnia plc than staying outside of the Economic and Monetary Union or continuing using Pound Sterling as a functional currency. Both of the choices will decrease the currency exchange rate fluctuation risk which was found to be the most significant to the company. Analysis were based mainly on academic articles, European Central Bank (ECB) publishing’s, and International Accounting Standards (IASs). 2. INTRODUCTION “The Economic and Monetary Union is an agreement between participating European nations to share a single currency, the Euro and a single economic policy with set conditions of fiscal responsibility. There are currently 27 member-states...
Words: 3577 - Pages: 15
...made with the treaty of Rome. Right now, 47 years later, the euro is a fact, with a monetary system that prevails over all the countries of the euro-zone, with a policy that was originally based on satisfying growth, low to no inflation, low unemployment and lower and more stable prices, as well as elimination of conversion fees, deeper financial markets, and lower volatility therein. It has been successful in accomplishing most of those objectives, even though some are openly disputed. Whether the euro as a whole is successful remains to be seen, since the question if the euro-zone in itself is suitable for monetary union is left largely unanswered. Two criteria are met with, and two are not. The key success factor now and in the future will be the policy of the ECB, which is dual; fight of inflation at the expense of economic growth or vice versa. How long the policy of the ECB can count on the trust of its members depends largely on movements in the world economy, the financial markets and the ability of policy makers to shroud the efforts in political correctness. ii. Table of contents i. Executive Summary p. 2 ii. Table of Contents p. 3 iii. Preface p. 4 1. Euro History p. 6 2. The European Monetary System p. 7 3. The early nineties currency crisis p. 8 4. Convergence program p. 10 5. Launch of the euro as a currency p. 12 6. The benefits of the euro p. 16 7. European Central Bank Policy and promises p. 23 ...
Words: 6577 - Pages: 27
...How will the Euro crisis affect the economy of China? Table of Contents Introduction...…………………………………………………………………… 2 The formation and evolution of the Euro zone crisis….…………………………3 The serious relationship in trading and investment filed between China and Europe ………………………………………………………….………………………..9 The influence of Euro zone crisis on China economy……..……………………10 Conclusion………………………………………………………………………15 Bibliography………….…………………………………………………………16 How will the Euro crisis affect the economy of China? Many economists now are analyzing the Euro zone crisis. As the biggest trading partner to China, how the Euro zone crisis affects China’s economy cannot be ignored. No matter the decision makers of the enterprises or the decision making department of the government, all need foresight to evaluate the risk and influence of the crisis and prepare the answer before that happens. This paper will provide some analysis and strategic thinking about the influence of the Euro zone crisis on China. Introduction: On August 25th, 2011, the president of France, Nicolas Sarkozy, came to visit China. According to the market prediction, the purpose of his visit was come to further persuade China to purchase European bonds, to support the recovery of Euro zone. The official media of the Chinese government reported that, the chairman Hu at that time expressed two points about China’s attitudes to President Sarkozy. First of all, China cared about the influence...
Words: 3499 - Pages: 14
...not part of the EMU and its reasons. Economic union is a common market that removes restrictions on trade between countries. The currency is the same and a central authority controls fiscal policies. It has a single currency and monetary policy. The objective of this stage is that members actually are formed as one nation and its features are a common fiscal common currency, harmonized tax rates, the pooling of foreign exchange reserves, and monetary policy. (Cerdeira, 2009) The EMU is a major step in the integration of the economy of the European Union. It involves the coordination of economic and fiscal policy of the same coin policies, some countries took the next step to the next stage and adopted the euro as its currency, and these countries are part of the euro area. (EC, 2014) " One Market, One Currency " is what the European Commission defined as a geographical area where the economy is a single currency and where risks can be managed and has flexibility among country. This would make cuts of a country being adversely affected by an external shock, but the EU was having more social and employment laws that reduce market flexibility. (Heathcoat- Amory, 2012) According Mundelll (1961), there are three conditions that countries need for a successful common currency to be beneficial: first external shock can not have that can you hit individual countries that are part of the EMU, the second condition is...
Words: 1912 - Pages: 8
...case for the UK joining the Euro There has been much dispute over whether the Euro has been a success and as to whether Britain should drop the pound and become the latest country to join the Euro. There are many advantages for and against the case for the UK joining the Euro which this essay will evaluate. One of the key advantages that adopting the Euro would bring to the UK is the lower costs of exchange associated with a single currency. When Britain trades with Europe they must pay the exporter in Euro’s and to obtain the currency they must pay a charge to banks. This is a significant cost which is usually passed on to consumers through higher prices. This is a very significant benefit considering for the EU as a whole the transaction costs involved with trading between each other are estimated at 0.4% of EU GDP. Associated with this is also price transparency; using a single currency makes it much easier for consumers and business to compare relative prices between prices. This also leads to improvements in allocative efficiency which in turn increases consumer welfare, however, when compared to other factors this gives relatively small financial gains for Britain. Joining the Euro would also increase Foreign Direct Investment. Many argue that the high amount of FDI that Britain currently receives could be at threat in the long-term if the UK doesn’t adopt the Euro. By removing a currency, which is a barrier to trade, membership of the Euro could also facilitate the...
Words: 682 - Pages: 3
...Introduction 1 2. Formation 2 2.1 Theoretical explain of the formation 2 2.2 Hardin’s grazing model 4 3. Ethics Involved 5 3.1 Ethical Egoism Theory 5 3.2 Utilitarian Theory 5 3.3 Moral Foundation Theory, Virtue Theory and Confucius 6 3.4 Right Theory 6 4. Solutions to the Tragedy 7 4.1 Free market solution 7 4.2 Socialism solution 9 4.3 Comparison of the Two Solutions 10 4.3.1 Attitude towards self-interest 11 4.3.2 Attitude towards common resources 11 4.3.3 Government Function 11 4.3.4 Incentive structures 11 4.3.5 Outcomes 12 5. Case of Euro’s Tragedy 12 5.1 How Euro’s Tragedy Happened 13 5.2 How it related to Tragedy of the Commons 14 5.3 Free Market Capitalism Solution and the Tragedy of Euro 14 5.4 Socialism Solution and the Tragedy of Euro 15 6. A Third Solution 17 6.1 Ethical Obligation 17 6.2 Cultivating Ethics 17 6.3 Elinor Ostrom’s Theory 18 7. Conclusion 20 Bibliography 21 Tragedy of the commons is an economic issue as well as an ethical problem rising from daily life. This paper would provide a broad discussion on the tragedy of the commons and come up with some solutions to it. We would start with the introduction of the tragedy by its definition and formation, analyze the ethics involved in it, and conclude the two...
Words: 5411 - Pages: 22
...THE EUROPEAN UNION CURRENCY: THE EURO ACCOUTING I The euro, in application of the Maastricht Treaty, entered circulation on January 1 2002. It is the official currency of 16 of the 27 member states of the European Union (EU). That union is made of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, The Netherlands, Portugal, Slovakia, Slovenia and Spain. The euro has become the second largest reserve currency and the second most traded currency after the U.S dollar (wikipedia). The creation of a single currency born out of a political concern turned out to be a good and strong monetary decision. According to the European Commission (website) the euro has provided many advantages and benefits over the previous situations where each member state had its own currency. Not only are fluctuations risks and exchange cost eliminated and the single market strengthened, but the euro also means a closer cooperation among member. Others assets are more choices and stable prices for consumers and citizen, a greater security and more opportunity for business and markets, an improved economic stability and growth, more integrated financial markets and a tangible sign of an European identity, a stronger presence for the E.U in the global economy making the euro a rival for the dollar. With all those benefits the euro is not without its critics. They were those who feared a lost of national identity because they had to relinquished their...
Words: 425 - Pages: 2
...the Euro Club? When the euro was introduced in January 1999, the United Kingdom was conspicuously absent from the list of European countries adopting the common currency. Although the current Labor government led by Prime Minister Tony Blair appears to be in favor of joining the euro club, it is not clear at the moment if that will actually happen. The opposition Tory party is not in favor of adopting the euro and thus giving up monetary sovereignty of the country. The public opinion is also divided on the issue. Whether the United Kingdom will eventually join the euro club is a matter of considerable importance for the future of European Union as well as that of the United Kingdom. The joining of the United Kingdom with its sophisticated finance industry will most certainly help propel the euro into a global currency status rivaling the U.S. dollar. The United Kingdom on its part will firmly join the process of economic and political unionization of Europe, abandoning its traditional balancing role. Investigate the political, economic and historical situations surrounding the British participation in the European economic and monetary integration and write your own assessment of the prospect of British joining the euro club. In dong so, assess from the British perspective, among other things, 1) potential benefits and costs of adopting the euro, UK is a country characterized by a conservative and stable economy. For them say yes to the Euro zone...
Words: 565 - Pages: 3
...Cost of equity 10.9% Year | Expected benefit | Midpoint | Discount factor | Discount value after tax million euro | 2004/2005 | 65-75 | 70 x 0.65 | 0.90171 | 41.03 | 2005/2006 | 110-135 | 122.5 x 0.65 | 0.81309 | 64.74 | 2006/2007 | 220-260 | 249 x 0.65 | 0.73317 | 114.37 | 2007/2008 | 295-370 | 332.5 x 0.65 | 0.66111 | 142.88 | 2008/2009 | 385-495 | 440 x 0.65 | 0.59613 | 170.49 | Beyond | 600 | 600x 0.65 | 0.59613x9.17431 | 2.132.94 | | | | Total | 2.666.45 | Probably, merger will reduce airlines post merger tax rate and systematic risk rate because of KLM’s tax loss carry forwards. If we look to management expectations value of synergies is about 2.666 million euro. Should KLM shareholders be paid as a takeover premium: * Companies can be assumed to the predicted synergies in similar way (KLM -15.7%, Air France 84.3 % - market value differences taking into account) * Merger can take form of an exchange of share in this case no premium must be paid. Assume: 1. Shareholders of Air France agree on merger value to be 2.666 million euro 2. They understand that they will receive (3008.8/(559.8+3008.8)) = 84.3% , but KLM (559.8/(559.8+3008.8)) = 15.7% 3. And Air France share price will rise Air France share price increase by: 10.22 Euro - 3008.8/(559.8+3008.8) x 2,666 x (1/219,780,887)) Price per share after announcement 23.91 Euro - 13.69+10.22 KLM price per share approximately 20.89 Euro Now we can calculated how many Air...
Words: 609 - Pages: 3
...Euro – Main Points: * The introduction of the Euro implied the beginning of a new era for economic policymaking in Europe, with a new environment calling for new arrangements for economic policy coordination. And the significance of the euro's launch goes far beyond its economic dimension. Its introduction in 1999 was the crowning achievement of a hugely complex political, legal, and technical process. * The level of economic integration between nations is also rising. The most well-known example of this is the European Union (EU). Forms of economic integration * The first level of formal economic integration is known as a free-trade area or agreement (FTA). Under a FTA all members remove tariffs on the products traded with each other, while maintaining their individual tariffs with the rest of the world. One of the issues with this form of integration is that non-member counties will export their products to the member country with the lowest external tariff and then into any of the other member countries with higher external tariffs, this practice is known as transhipment (Appleyard, Field & Cobb, 2006: 376). * The second form of economic integration is known as a customs union (CU). A CU retains all the elements of a FTA but in addition involves the abolishment of their individual external trade policies. This is done by establishing a common external tariff (CET) which removes the possibility of transhipment by non-members. Members of a CU also typically...
Words: 1648 - Pages: 7
