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GUL NAWAZ 351
HASSAN 361QASIM 370
AWAIS 380
MUHSAN 381
USMAN 389
HAILEY COLLEGE OF COMMERCE
UNIVERSITY OF THE PUNJAB
LAHORE
Submitted to: Prof. NAVEED AHMAD
Submitted by:
Section F (Morning)
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ESTABLISHMENT OF EURO
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EU
RO The euro (sign: ; code: EUR) is the officialcurrency of the European Union (EU), and is
currently in use in 16 of the 27 Member States.
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EU
RO SIG
N A special euro currency sign () was designed after a publicsurvey had narrowed the original ten proposals down to two. The
European Commission then chose the design created by the
Belgian Alain Billiet.
Inspiration for the symbol itself came from the Greek epsilon (
a reference to the cradle of European civilisation and the firstletter of the word Europe, crossed by two parallel lines to certify
the stability of the euro
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EU
RO The name euro was officially adopted on 16December 1995.
The euro was introduced to world financial
markets as an accounting currency on 1 January
1999, replacing the former European Currency
Unit (ECU) at a ratio of 1:1.
Euro coins and banknotes entered circulation on
1 January 2002.
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The euro is the second largest reserve currency
(a status it inherited from the German mark)
as well as the second most traded currency in
the world after the U.S. dollar. As of October
2009, with more than 790 billion incirculation, the euro is the currency with the
highest combined value of banknotes and coins
in circulation in the world, having surpassed
the U.S. dollar
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Economic and Monetary Union and the Euro
The European Economic and Monetary Union (EMU) is an
agreement between participating European nations to share a
single currency, the euro, and a single economic policy with set
conditions of fiscal responsibility
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HISTORY ADOPTING THE EURO
Need for single Currency
In the wake of the Second World War, most currencies of the
industrialized world were tied closely to the US-Dollar under the
so-called gold standard under the Bretton Woods System
The de facto supremacy of the Dollar and forced devaluations ofseveral European currencies led European politicians to seek this
imbalance through greater economic integration between
European nations
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HISTORY ADOPTING THE EURO
Need for single Currency
Plans for a single European currency began in 1969 with the
Barre Report,
The process was delayed by the collapse of the Bretton WoodsSystem in 1971 after President Nixon's unilateral decision to
make the dollar inconvertible to gold and by the oil crisis of 1972.
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HISTORY ADOPTING THE EURO
EMU(Economic and Monetary Union )
In 1979 the European Monetary System (EMS)
European Exchange Rate Mechanism (ERM)
Exchange rates of each member states currency was to be
restricted to narrow fluctuations (+/-2.25%)
In the late 1980s the market of each member state grew closer
to its neighbors,
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HISTORY ADOPTING THE EURO
EMU(Economic and Monetary Union )
The European Commission of Jacques Delors passed the Single
European Act in February 1986
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HISTORY ADOPTING THE EURO
Stages of EMU(Economic and Monetary Union )
In 1989, plans were drawn up to realize the EM
Uin three
stages
Stage1 began with the EMS in 1979, the first stage officially
began in 1990, when exchange rate controls were abolished, thus
freeing capital movements within the EEC
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HISTORY ADOPTING THE EURO
Establishment of European Monetary Institute (EMI)
The following year the European Council in Brussels selected
eleven countries to adopt the euro in 1999
ECB came into being
In the second stage of the EMU
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HISTORY ADOPTING THE EURO
In the 3rd stage of the EMU
On 1 January 1999 the euro was adopted in non-physical form,
with the exchange rates for 11 of the then 15 member states'
currencies fixed on the last day of 1998.The ECB began enforcing a single, monetary policy with the
assistance of the Central Banks of each member state
The euro was a virtual currency for the 12 countries of the so-
called Eurozone
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Criteria for membership in the European Union
The 1st is theMaastricht Treaty
of 1992, whichentered force on 1November 1993.
The 2nd wascreated by the
European Councilin Copenhagen
and the creation
of theCopenhagenCriteria, which
clarified thegeneral goals ofthe Maastricht
Treaty .
The 3rd is theFramework
contractnegotiated witheach accessioncountry before
joining the EU
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Convergence Criteria set out by the Maastricht Treaty
Currencies has to stay within the bands set by the ERM for at leasttwo years
Long-term interest rates could not be more than two percentage pointshigher than those of the three, best-performing member states
Inflation had to be below a reference value (within 3 years prices maynot be higher than 1,5% of best performer)
Government debt had to be below 60% ofGDP (or moving towards thisobjective) and budget deficits below 3%
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Trading of EURO
4 January 1999, the euro was at 1.1789 to the US-Dollaronly one year later and continuing to fall until 26 October 2000, when
the new currency reached its lowest point with US$0.8225. Over the
year the average exchange rate was US$0.95.
The euro did not recover until the introduction of cash euro in 2002,
rising from US$0.90 to US$1.02 at the end of 2002. One year later it
reachedUS$1.24. In November 2004, it passed the mark ofUS$1.30and on 30 December 2004 it finished on its record high ofUS$1.3668.
In the course of 2005 the euro then dropped to US$1.18 in December
and then, in November, below its starting point. In 2006 the euro rose
to betweenUS$1.1813 on January 2nd and US$1.2958 on June 5th. At
the end of the year the currency peaked to its record high after easily
breaking the US$1.30 mark and seemed set to stay there.With the credit crisis deepening throughout 2007 and 2008, the euro
soared to a new high of $1.5990 in mid-July 2008. By the end of the
year, the euro had also reached near parity with UK pound sterling
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THE EUROPEAN CENTRAL BANK
Established in, Germany, in June 1998
employs around 1,350 people from all 27
EU countries
As the central bank responsible for
Europes single currency
The ECB works closely with the
national central banks of all euro area
countries in a team called the
Eurosystem.
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THE EU
ROPEAN CENTRAL BANK
ECB
EURO SYSTEM
EUROPEN SYSTEM OF CENTRAL
BANKS
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THE EUROPEAN CENTRAL BANK
Replacing the currencies of a group ofsovereign states with a single currency,
and
Devising a monetary policy for the
nascent euro area.
Price stability over the medium term,
because stable prices form the basis forsustainable economic growth and
prosperity in Europe
Tasks of ECB (European Central Bank)
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THE EUROPEAN CENTRAL BANK
The ECB has the exclusive right to authorise the issuance of
Coins currency and banknotes within the euro area.
All euro coins have a common side, and a national side chosen by
the issuing bankThe euro is divided into 100 cents (sometimes referred to as euro-
cents, especially when distinguishing them from other currencies).
Euro coins from any Member State may be freely used in any
nation which has adopted the euro.
The coins are issued in 2, 1, 50c, 20c, 10c, 5c, 2c, and 1c
denominations.The nearest five cents in the Netherlands (by voluntary
agreement) and in Finland (by law)
Coins currency & Banknotes
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The design for the euro banknotes have 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 colour and is dedicated to an artistic period of
European architecture
Some of the highest denominations such as the 500 are not issued in all
countries, though they remain legal tender throughout the eurozone.
Coins currency & Banknotes
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The euro area
consists of
the EUcountries
that have
adopted the
euro.
EURO AREA
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16 Member States of the EuropeanU
nion use the euro
EURO MEMBERS
Belgium Germany
Ireland Greece
Luxembourg Malta
Netherlands Austria
Spain France
Italy Cyprus
Portugal Slovenia
Slovakia Finland
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Non-participants
Bulgaria,
Czech Republic,
Denmark,
Estonia,
Latvia,
Lithuania,
Hungary,
Poland,
Romania,
Sweden
United Kingdom
are EU Member States but do not currentlyuse the single European currency
Estonia is expected to join in 2011, subject to approval from the Council
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WHY WOULD A COUNTRY NOT USE THE EURO IF
THEY ARE A MEMBER OF THE EUROPEAN UNION?
Loss of monetary policy - the ability to set
your own interest rate
This cost depends on how integrated the country is
with the rest of the Euro zone. If all Euro zonecountries' economies fluctuated in the same way then
one interest rate is all they'd need and so the cost of
joining would be minimal.
The main benefit of joining is the boost in trade through
exchange rate stability and removal of transaction costs.This benefit is mostly affected by how much potential
trade that country has with the rest of the Euro zone.
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The euro is the sole currency of 16 EU Member States compose the
"eurozone", some 326 million people in total.
The euro is also the sole currency of Montenegro and Kosovo and several
European micro states (Andorra, Monaco, San Marino and Vatican City
Direct usage
Use as reserve currency
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
The total of euros held as a reserve in the world at the end of
2008 was equal to USD 1.1 trillion, with a share of 22% of all
currency reserves in advanced economies,
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EFFECT OF THE INTRODUCTION OF THE EURO
Trade
Euro has increased trade within the eurozone by 5% to 10%On
the lower bound, one study suggested an increase of 3%.A recent
study estimates this effect to be between 9 and 14%.
The introduction of the euro has had a positive impact on the movement ofgoods, financial assets, and people within the eurozone. In addition, countries
which previously had weak currencies have benefited from lower interest rates
and their firms now have easier access to capital.
Investment
Positive effect of the introduction of the euro on investment.
Physical investment seems to have increased by 5% in the
eurozone due to the introduction.
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EFFECT OF THE INTRODUCTION OF THE EURO
Exchange rate risk
Effect on interest rates
The introduction of the euro has decreased the interest rates of
most members countries, in particular those with a weakcurrency. As a consequence the market value of firms from
countries which previously had a weak currency has very
significantly increased.
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".
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EFFECT OF THE INTRODUCTION OF THE EURO
Tourism
A study has found that the introduction of the euro has had a
positive effect on tourism flows within the EMU, with an increase
of 6.5%.
Against other major currencies
After the introduction of the euro, its exchange rate against other
currencies fell heavily, especially against the U.S. dollar. From an
introduction at US$1.18/, the euro fell to a low of $0.8228/ by
26 October 2000. After the appearance of the coins and notes on 1January 2002 and the replacement of all national currencies, the
euro began steadily appreciating, and regained parity with the
U.S. dollar
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EFFECT OF THE INTRODUCTION OF THE EURO
Against other major currencies
On 23 May 2003, the euro surpassed its initial ($1.18) trading
value for the first time.
At the end of 2004, it reached $1.3668 (0.7316/$) as the U.S.
dollar fell against all major currencies.
Against the U.S. dollar, the euro temporarily weakened in 2005,falling to $1.18 (0.85/$) in July 2005.
On 15 July 2008, the euro rose to an all-time high of $1.5990
(0.6254/$).
In a reversal, in August 2008 the euro began to drop against the
U.S. dollar. In just two weeks the euro fell from its peak to $1.48
On 29 December 2008, the pound sterling fell to an all-time low of0.97855 (1.0219/) against the euro,
although its value recovered somewhat in 2009.
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