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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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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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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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EMU(Economic and Monetary Union )

The European Commission of Jacques Delors passed the Single

European Act in February 1986


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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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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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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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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 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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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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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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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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