Fin243 money and banking section 4 report group 3
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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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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


Should EEC member countriesintegrate the currency to be Euro?


  • What is Euro

  • Benefits & drawback

  • Analysis> exchange rate> inflation rate

  • conclusion


Make currency not devalue

Robert A. Mundell

1999 Nobel Laureate

in Economics

Father of Euro


What’s Euro?

Official currency of the Eurozone


Euro Zone


  • 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)


Coins

Banknotes


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


  • 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


Benefits

&

drawback


The benefitsof Euro

Lower transaction rates

Increase trade

Transparency& Competition

Lower bank reserve

Capital Market

Low inflation rates


Drawbacks of Euro

  • The policies of the members

  • The cooperation of the EEC members

  • Limitation of using Euro

  • External economic factors


Analysis

  • exchange rate

  • inflation rate


  • “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


exchange rate variability from 1999 Jan to 2007 Jan.

against GBP


  • 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.


  • 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


exchange rate variability from 1999 Jan to 2007 Jan.

against US dollars


  • 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,


Hong Kong Dollar


  • linking up with the US Dollar

  • similar to the US Dollar.


2003

  • notdrop anymore

  • already meet its target

  • to satiable the exchange rate.


Inflation rates


  • Inflation  a general rise in prices

  • Pressure on price adjustment

  • Asymmetries in the transmission mechanism (Cecchetti, 1999)

  • demand & supply shock (Bayoumi & Eichengreen, 1993)


  • New currency not stable

  • Not well developed

  • unpredicted environment factors

  • e.g: exchange rate, oil price.


The inflation rate in Euro area and the US


  • From the observe : Euro can

  • successful monetary union

  • low inflation rates

  • price stable

  • productive

  • more investment & consumption

  • Export & import

  • Avoiding loss from emancipated inflation


  • Monetary policy

  • Lack of degree of freedom to control area –wide inflation

  • minimizing the deviation of area –wide inflation in long-run


  • Shrink the inflation rate in Euro &US

  • Keep the inflation rate in an acceptable level


Conclusion


  • official currency of the Euro zone

  • process of triangulation


analysis of Euro

  • Exchange-rate

    2003

    not drop anymore

    stable

  • The Inflation rate

    keep in the low level

    no affect the market

    stable


  • Euro seems work in some countries

  • Lots of benefits

  • Cannot omit the drawbacks

  • Deep consideration in taking as role model


END


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