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.
However adopting the eurozone may increase the cost for the UK businesses. The change from sterling and euro will inevitably leads to transition costs as till and prices have to be changed over, which includes the menu costs such as accounting systems, tills, catalogues, display material and price lists, and which has been estimated at between 12 billion and 15 billion. The consumer time is used in making the adjustment.
There will be also transparent prices throughout the eurozone, as UK firms will now have to price products in Euros, they must be competitive with the best firms in the area, because they cannot hide behind a pricing system that is influenced by the sterling exchange rate and claim that is causing them uncompetitive. On the other hand the competitiveness is depends on the exchange rate between euros and sterling.
In 2007, there was an exchange rate of 1: 1.48, which made the UK businesses very uncompetitive. However, due to the crisis in Greece, the euro has been dropped sharply to now 1: 1.14, which means the UK product become competitive. The fluctuating exchange rate between sterling and the euro exposes businesses to potential currency risk, if they commit to sell at a price in euros and the euro weakens against sterling before they receive payment, they will have lost out. In order to reduce this risk, businesses could slightly increase their prices to cover potential losses. However businesses may also offer a euro price as well, at least as an alternative, to retain your longer-term competitiveness, so they might maximise the revenue. Although the euro price makes price comparisons easy and some prices will therefore vary less.
In order to determine an amount of investment on a project, they will use the interest rate to compare the rate of return of the project. As if UK joins the eurozone, the interest rate will be set be the European Central Bank. Although this bank would consider UK economics conditions if the UK adopted the euro, for example as the UK is in the recession, it may require a low interest rate to stimulate the investment, but the rate set by ECB may not below enough as it also consider the conditions in the rest of the EU countries. The loss of ability to set the interest rate to suit the economy bank the Bank of England may affect a lot of business conditions, and so a higher interest rate is likely to lead to a fall in investment, and businesses might have less incentives to improve.
In conclusion, the adoption of euro will encourage trade which will benefit the every business as they might have more revenue gained, also could have boost some profit to the business and lead to a greater success. But the adoption could also lead to a great danger, it is because if the UK joins the eurozone, UK will be also affected by the crisis in Greece and lead to depreciation in euro, and businesses will be suffered a lot and some may even lose out in the market. Also at present there are still no plans for the UK to join the euro, so now businesses can suffer less, and also as UK expectation growing, business might reach success soon.