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Euro currency

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Published on November 21, 2011

Author: sadry

Source: authorstream.com

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Euro currency: Euro currency Presented by: Waisuddin sadry MBA, 3 rd sem Introduction : The euro (sign: €; code: EUR) is the official currency of the euro zone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union The euro zone consists of : Austria Belgium Cyprus Estonia Finland France Germany Greece Ireland Italy Luxembourg Malta The Netherlands Portugal Slovakia Slovenia Spain Introduction iNTRODUCTION: iNTRODUCTION The euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar. The name euro was officially adopted on 16 December 1995.The euro was introduced to world financial markets as an accounting currency on 1 January 1999, Euro coins and banknotes entered circulation on 1 January 2002 The currency is also used in a further five European countries : Montenegro Andorra Monaco San Marino Vatican City It is consequently used daily by some 332 million Europeans PowerPoint Presentation: Andorra Austria Belgium Cyprus Finland France Germany Greece Ireland Italy Kosovo Luxembourg Countries with this currency PowerPoint Presentation: The central bank in Europe is called the European Central Bank (ECB), and as of 2011, 17 EU member states have adopted the Euro. It is the second-most traded currency on the forex market, as many institutions and individuals trade the EUR. Other names for the Euro are Teuro (German), Eumeln (German), Quid (Irish English), Leru (Spanish), Neuro (Italian), and Ege (Finnish). On January 1, 1999, eleven of the countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherland, Portugal, and Spain) In the European Economic and Monetary Union (EMU) decided to give up their own currencies and adopt the Euro (EUR) currency- The Vatican City also participated in that changeover. Greece followed suit on January 1, 2001, Slovenia on January 1 2007, Malta and Cyprus on January 1, 2008, and Slovakia on January 1, 2009. History: Currency Facts : Currency Facts EUR Stats EUR Profile Name: Euro Symbol: € Cent: cent Minor Unit: 1/100 = Cent Central Bank Rate: 1.5 Top EUR Conversion: EUR/USD Top EUR Chart: EUR/USD Chart Inflation: 2.5% Nicknames: Ege (Finnish), Eumeln (German), Leru (Spanish), Neuro (Italian), Quid (Irish English), Teuro (German) Coins: Freq Used: €1, €2, 5cent, 10cent, 20cent, 50cent Rarely Used: 1cent, 2cent Banknotes: Freq Used: €5, €10, €20, €50, €100 Rarely Used: €200, €500 Central Bank: European Central Bank Website: http://www.ecb.eu PowerPoint Presentation: Characteristics: Coins and banknotes The euro is divided into 100 cents (sometimes referred to as euro cents, especially when distinguishing them from other currencies) All circulating coins have a common side showing the denomination or value, and a map in the background. For the denominations except the 1-2 and 5-cent coins, that map only showed the 15 member states which were members when the euro was introduced. All euro coins have a common side, and a national side chosen by the issuing bank PowerPoint Presentation: The coins also have a national side showing an image specifically chosen by the country that issued the coin. Euro coins from any member state may be freely used in any nation which has adopted the euro. PowerPoint Presentation: The coins are issued in €2, €1, 50c, 20c, 10c, 5c, 2c, and 1c denominations. In order to avoid the use of the two smallest coins, some cash transactions are rounded to the nearest five cents in the Netherlands (by voluntary agreement) and in Finland (by law). The design for the euro banknotes has common designs on both sides. The design was created by the Austrian designer Robert Kalina . Notes are issued in €500, €200, €100, €50, €20, €10, €5. Each banknote has its own color and is dedicated to an artistic period of European architecture. The front of the note features windows or gateways while the back has bridges. PowerPoint Presentation: Administartion : Th e euro is managed and administered by the Frankfurt-based European Central Bank (ECB) and the Euro system (composed of the central banks of the eurozone countries). As an independent central bank, the ECB has sole authority to set monetary policy. The Euro system participates in the printing, minting and distribution of notes and coins in all member states, and the operation of the eurozone payment systems. The ECB in Frankfurt, Germany, is in charge of the eurozone's monetary policy. PowerPoint Presentation: Payments clearing, electronic funds transfer Capital within the EU may be transferred in any amount from one country to another. All intra-EU transfers in euro are considered as domestic payments and bear the corresponding domestic transfer costs. This includes all member states of the EU, even those outside the eurozone providing the transactions are carried out in euro. Credit/debit card charging and ATM withdrawals within the eurozone are also charged as domestic, however paper-based payment orders, like cheques , have not been standardised so these are still domestic-based. The ECB has also set up a clearing system, TARGET, for large euro transactions. PowerPoint Presentation: Direct and indirect usage Direct usage The euro is the sole currency of 17 EU member states: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany,Greece , Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. These countries comprise the "eurozone", some 326 million people in total. With all but two of the remaining EU members obliged to join, together with future members of the EU, the enlargement of the eurozone is set to continue further. Outside the EU, the euro is also the sole currency of Montenegro and Kosovo and several European micro states (Andorra, Monaco, San Marino and the Vatican City) as well as in three overseas territories of EU states that are not themselves part of the EU (Mayotte, Saint Pierre and Miquelon and Akrotiri and Dhekelia ). Together this direct usage of the euro outside the EU affects over 3 million people. It is also gaining increasing international usage as a trading currency, in Cuba, North Korea and Syria. There are also various currencies pegged to the euro . In 2009 Zimbabwe abandoned its local currency and used major currencies instead, including the euro and the United States dollar. PowerPoint Presentation: Use as reserve currency Since its introduction, the euro has been the second most widely held international reserve currency after the U.S. dollar. The share of the euro as a reserve currency has increased from 17.9% in 1999 to 26.5% in 2008, at the expense of the U.S. dollar (its share fell from 70.9% to 64.0% in the same timeframe) and the Yen (it fell from 6.4% to 3.3%). The euro inherited and built on the status of the second most important reserve currency from the Deutsche Mark. The euro remains underweight as a reserve currency in advanced economies while overweight in emerging and developing economies : according to the International Monetary Fund the total of euro held as a reserve in the world at the end of 2008 was equal to USD 1.1 trillion or €850 billion, with a share of 22% of all currency reserves in advanced economies, but a total of 31% of all currency reserves in emerging and developing economies. PowerPoint Presentation: Economics Optimal currency area : In economics, an optimum currency area ( or region) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency.  However, even before the creation of the single currency, there were concerns over diverging economies. 2) Transaction costs and risks : The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e.g., credit cards, debit cards and cash machine withdrawals). The absence of distinct currencies also removes exchange rate risks. PowerPoint Presentation: Economics The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones. Companies that hedge against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations. 3) Price parity : Another effect of the common European currency is that differences in prices – in particular in price levels – should decrease because of the 'law of one price'. Differences in prices can trigger arbitrage, i.e. speculative trade in a commodity across borders purely to exploit the price differential. Therefore, prices on commonly traded goods are likely to converge, causing inflation in some regions and deflation in others during the transition. Some evidence of this has been observed in specific eurozone markets. PowerPoint Presentation: Economics 4) Investment : Physical investment seems to have increased by 5% in the eurozone due to the introduction. Regarding foreign direct investment, a study found that the intra-eurozone FDI stocks have increased by about 20% during the first four years of the EMU. Concerning the effect on corporate investment, there is evidence that the introduction of the euro has resulted in an increase in investment rates and that it has made it easier for firms to access financing in Europe. The euro has most specifically stimulated investment in companies that come from countries that previously had weak currencies. A study found that the introduction of the euro accounts for 22% of the investment rate after 1998 in countries that previously had a weak currency. PowerPoint Presentation: Economics 5) Inflation : The introduction of the euro has led to extensive discussion about its possible effect on inflation. In the short term, there was a widespread impression in the population of the eurozone that the introduction of the euro had led to an increase in prices, but this impression was not confirmed by general indices of inflation and other studies. It has also been suggested that the jump in small prices may be because prior to the introduction, retailers made fewer upward adjustments and waited for the introduction of the euro to do so. 6) Exchange rate risk : One of the advantages of the adoption of a common currency is the reduction of the risk associated with changes in currency exchange rates. It has been found that the introduction of the euro created "significant reductions in market risk exposures for nonfinancial firms both in and outside of Europe“. These reductions in market risk "were concentrated in firms domiciled in the eurozone and in non-Euro firms with a high fraction of foreign sales or assets in Europe". PowerPoint Presentation: Economics 7) Financial integration: The introduction of the euro seems to have had a strong effect on European financial integration. According to a study on this question, it has "significantly reshaped the European financial system, especially with respect to the securities markets .However, the real and policy barriers to integration in the retail and corporate banking sectors remain significant, even if the wholesale end of banking has been largely integrated.“ Specifically, the euro has significantly decreased the cost of trade in bonds, equity, and banking assets within the eurozone. On a global level, there is evidence that the introduction of the euro has led to an integration in terms of investment in bond portfolios, with eurozone countries lending and borrowing more between each other than with other countries. PowerPoint Presentation: Economics 9) Effect on interest rates : The introduction of the euro has decreased the interest rates of most members countries, in particular those with a weak currency. As a consequence the market value of firms from countries which previously had a weak currency has very significantly increased. The countries whose interest rates fell most as a result of the euro are Greece, Ireland, Portugal, Spain, and Italy.[61] The effect of such low interest rates made it easier for banks within the countries in which interest rates fell and the countries themselves to borrow significant amounts (above the 3% of GDP budget deficit imposed on the eurozone initially) and increase their public deficit and levels of privately held consumer debt. 10) Tourism A study suggests that the introduction of the euro has had a positive effect on the amount of tourist travel within the EMU, with an increase of 6.5%.

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