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Would the Euro benefit UK businesses?

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Introduction

Would the Euro benefit UK businesses? By Martin Yau Contents Introduction 1 Sources 1 Exchange Rates 1 European Single Market 2 The Euro (�) 3 Case Study: BMW Group 5 The Public Vote 7 The Verdict 11 Bibliography 13 Books 13 Websites 13 Would the euro benefit UK businesses? Introduction On 1st January 1999 12 members of the European Union adopted the euro. Members are; Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and Greece. The transition period began until 31st December 2001. National banknotes were withdrawn by the end of February. The introduction of the euro had impact on businesses in the euro zone. Would UK businesses benefit? I will find out about this by doing research, logging onto websites, sending emails to some companies, surveying companies, looking in economic magazines, textbooks and newspaper articles, which are relevant to this topic. I will find out about the euro first, possible impacts on UK businesses. Sources Exchange Rates The exchange rate is an international market for buying and selling currencies at a price at which its own currency exchanges for that of others, e.g. �1 = �1.7. There are two ways the exchange rate may influence business activities: Price of goods and/or services which businesses: * Buy in international markets. * Sell in international markets. ...read more.

Middle

-0.8 1.4 EU15 2.3 2.1 2.0 1.6 0.4 2.3 United Kingdom 5.8 4.9 7.5 4.8 4.9 5.3 : Not available Source 2 Eurostat Unemployment rate in the euro zone is 8.3%, compared to 7.7% (rest of EU). This illustrates that unemployment in the euro zone is slightly worse than the rest of the EU. Unemployment rates (%) in July and August 2002 in ascending order August July August July EU15 7.7 7.7 Portugal 4.6 4.5 Euro-zone 8.3 8.3 Sweden 4.8 4.9 Belgium 6.9 6.9 Luxembourg 2.5 2.4 Germany 8.3 8.3 Netherlands : 2.8 France 8.9 8.9 Austria 4.2 4.2 Italy : 9.0 Denmark 4.3 4.3 Finland 9.4 9.3 Ireland 4.5 4.5 Spain 11.3 11.3 Source 3 Eurostat Advantages are: * Companies plan ahead, due to stable value of the euro. * Money is saved on transaction. * Low inflation. * Low interest rates, means growth. * Protection against costs, e.g. large exchange rates, which slows economic growth and distort trade flows. * No costs, higher than original cost, to compensate exchange rate uncertainty and high dividends to share holders. Disadvantages are: * Countries economic policies controlled (no freedom to adopt different policies). * Unpredictable consequences, if inflation rate increases rapidly, e.g. Greece - 200% increase on some goods. Consumers were furious. Case Study: BMW Group BMW Group produces automobiles. The firm is made up of BMW, Rolls Royce and Mini. ...read more.

Conclusion

Breaks Tradition 1 1 0 Increase in unemployment rate 1 1 0 UK economy will become unstable 2 0 2 Confusion 2 0 2 Consumers would be better off when the euro is introduced in the UK? Yes 11 6 5 No 9 4 5 Reason for Yes Money saved on transaction 2 2 0 More choices 2 2 0 Easier price comparison 5 2 3 Less confusion 1 0 1 Mortgage rates will not increase above 4% 1 0 1 Reason For No Economy will be controlled by EU 2 2 0 Public will not like change 1 1 0 Pound is more competitive 1 1 0 Price increase 5 0 5 Total Number of people surveyed 20 10 10 The Verdict Based on the information I have got, the advantages outweigh the disadvantages. If the euro is introduced in the UK, it would partly contribute inflation rate increase and consumers would get confused during the transition period for a short term, e.g. changing state of economy. In the long term, there would be greater benefits, including lower production costs by locating factories to areas, which labour and capital costs are lower. There is one problem, if EU countries in the Euro zone do not co-operate well, economies are not in line with each other or war breaks out, the euro would simply disintegrate and Euro zone countries would use their original currencies before the introduction of the euro. ...read more.

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