International Banking and Finance



International Banking and Finance

Introduction to Scenario

The introduction of Euro in 1999 did not witness United Kingdom's support for the unified currency of Europe; raising speculative instances as to why do not the U.K. accept the Euro? The present government establishes a supportive framework in favor of the currency but it is still not finalized as to when the U.K. will accept the Euro. This topic is of considerable significance to the European Union and the British state, realizing potential benefits for the two economies.

Discussion

Prospect of British joining the Euro Club

Potential benefits and costs of adopting the Euro

There are quite a number of evident benefits associated with the U.K. adoption of the Euro. The main expected benefits of EMU are three in number: the reduction of transaction costs, the disappearance of currency risk, greater price transparency. European monetary integration will have a significant impact on British business irrespective of whether the UK decides to participate. Entry into the euro zone will involve those countries with significant economic changes. On the one the other hand, closer integration with the euro area is positive affected their economic growth and efficiency (Engelbrekt, 2002). In addition, they will cease to be at risk, which is typical for emerging market countries. On the other hand, there- exist and the potential costs of participation in monetary union, due to the fact that member states under a monetary union, laid paper asymmetric shocks.

Deepening the internal market: The establishment of the euro, but not essential for the functioning of the internal market, it does allow the final step in achieving the integration of markets, thereby increasing the benefits it offers. The establishment of prices of goods and services on a single currency promotes transparency throughout the European market, which is difficult to discriminatory pricing (Olsen, 2001). These effects also apply to financial markets, which increases competition among the various financial institutions to eliminate one of the elements that contribute to market segmentation: the denomination of assets in different currencies. Consequently, funding options open to individuals and companies will be expanded and improved substantially.

Macroeconomic stability: The convergence conditions laid down in the Treaty on European Union ensured that only those countries with macroeconomic stability agree to the common currency. The good macroeconomic conditions targeted are reinforced by the existence of a single monetary policy aimed at price stability. This also ensures high anti-inflation credibility of the ECB, which achieve the desired results of inflation, will be less expensive (Andreas, 2011).

International currency: Finally, the economic and commercial power of the European Union and the basis on which it has built the single currency, allowing the euro to become a reserve currency.

Increased Trade and reduced costs to firms: Proponents of the move argue that it brings considerable economic trade through the wiping out of exchange rate fluctuations, but as well as this it helps to lower costs to industry because companies will not have to buy foreign exchange for use within the ...