Discuss the likely impact on the success of UK businesses of UK membership of the eurozone (adopting the Euro currency). (40 marks)

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Discuss the likely impact on the success of UK businesses of UK membership of the eurozone (adopting the Euro currency). (40 marks)

By adopting the euro, UK businesses can reduce the exchange rate costs, as countries in the eurozone are using the same currency, so the costs of commission and charges, also the cost of the risk factor of changing values of currencies will reduce as well. This will make trade cheaper and encourage more exchange.

The adoption of euro increase the price transparency, as euro is used all around in eurozone, it makes it easier for consumers to compare prices between different countries. Therefore they can choose the cheapest and this increase the competition and efficiency. However businesses will be less able to price discriminate between countries and the result is lower prices in the eurozone.

For example, Amazon, the online shopping website, despite that it is an American business, but there is Amazon.co.uk, in between the transaction between the deal, you are able to decide which currency you would like to pay with, which the system will convert the value of one currency to another, so the customer is able to pay in the currency which they familiar with, and the customers may able to choose for the best value.

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The increase in price transparency and the reduction in exchange rate costs have encourage trading as well, as it might bring specialization and gains. There has also been a wave of cross border mergers leading to bigger firms with more economies of scale. As the UK businesses are using the common currency and the increased ease of money transfer, this gives UK businesses the competitive advantage compared to those who are outside the eurozone. The UK has been the major beneficiary of FDI in recent years, so this brought a lot of inward investment to improve on different businesses.

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