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FIN243 – Money and Banking Section 4 Report Group 3

FIN243 – Money and Banking Section 4 Report Group 3. Chan Chun Yeuk 053113 Kwan Yi Ting 053114 Chan Kin Ho 053115 Cheung Tsun Fung 053118 Tam Yiu Hon 053120. Should EEC member countries integrate the currency to be Euro?. What is Euro Benefits & drawback

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FIN243 – Money and Banking Section 4 Report Group 3

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  1. FIN243 – Money and BankingSection 4Report Group 3 Chan Chun Yeuk 053113 Kwan Yi Ting 053114 Chan Kin Ho 053115 Cheung Tsun Fung 053118 Tam Yiu Hon 053120

  2. Should EEC member countriesintegrate the currency to be Euro?

  3. What is Euro • Benefits & drawback • Analysis> exchange rate> inflation rate • conclusion

  4. Make currency not devalue Robert A. Mundell 1999 Nobel Laureate in Economics Father of Euro

  5. What’s Euro? Official currency of the Eurozone

  6. Euro Zone

  7. European System of Central Banks, ESCB • European Central Bank, ECB Trichet (Current president of the European Central Bank) Duisenberg (First president of the European Central Bank)

  8. Coins Banknotes

  9. All EU member can join • a budget deficit of less than 3% of their GDP • a debt ratio of less than 60% of GDP • inflation and interest rates close to the EU average

  10. 1/1/2007 - Slovenija • 1/1/2008 - Eesti Vabariik, Latvijas, Malta, Cyprus • 1/1/2009 - Lithuania, Slovakia • 1/1/2010 - Czech Republic, Bulgaria • 1/1/2011 – Poland, Hungary, Romania

  11. Benefits & drawback

  12. The benefitsof Euro Lower transaction rates Increase trade Transparency& Competition Lower bank reserve Capital Market Low inflation rates

  13. Drawbacks of Euro • The policies of the members • The cooperation of the EEC members • Limitation of using Euro • External economic factors

  14. Analysis • exchange rate • inflation rate

  15. “Just brings from a simple mind that not to devaluate in currency unit.” • Is that already achieved? • focus on the local effect of Euro • exchange rate and the inflation rate

  16. exchange rate variability from 1999 Jan to 2007 Jan. against GBP

  17. purpose of the EMS was therefore to create a zone of monetary and exchange rate stability. • drop in the exchange rate of Euro and there was a trend of beingstable after 2003.

  18. Beside the policy factors in Euro in 1999-2002 • people lack of confidence in 2003 • weakness of the US Dollar • between 0.66 and 0.7

  19. exchange rate variability from 1999 Jan to 2007 Jan. against US dollars

  20. same main reason 2002 July • weakness of the US Dollar • could Euro replace the state of the US Dollar • between 1.1 and 1.3,

  21. Hong Kong Dollar

  22. linking up with the US Dollar • similar to the US Dollar.

  23. 2003 • notdrop anymore • already meet its target • to satiable the exchange rate.

  24. Inflation rates

  25. Inflation  a general rise in prices • Pressure on price adjustment • Asymmetries in the transmission mechanism (Cecchetti, 1999) • demand & supply shock (Bayoumi & Eichengreen, 1993)

  26. New currency not stable • Not well developed • unpredicted environment factors • e.g: exchange rate, oil price.

  27. The inflation rate in Euro area and the US

  28. From the observe : Euro can • successful monetary union • low inflation rates • price stable • productive • more investment & consumption • Export & import • Avoiding loss from emancipated inflation

  29. Monetary policy • Lack of degree of freedom to control area –wide inflation • minimizing the deviation of area –wide inflation in long-run

  30. Shrink the inflation rate in Euro &US • Keep the inflation rate in an acceptable level

  31. Conclusion

  32. official currency of the Euro zone • process of triangulation

  33. analysis of Euro • Exchange-rate 2003 not drop anymore stable • The Inflation rate keep in the low level no affect the market stable

  34. Euro seems work in some countries • Lots of benefits • Cannot omit the drawbacks • Deep consideration in taking as role model

  35. END

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