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 banking section 4 report group 3

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 countries integrate the currency to be euro

Should EEC member countriesintegrate the currency to be Euro?


Fin243 money and banking section 4 report group 3

  • What is Euro

  • Benefits & drawback

  • Analysis> exchange rate> inflation rate

  • conclusion


Fin243 money and banking section 4 report group 3

Make currency not devalue

Robert A. Mundell

1999 Nobel Laureate

in Economics

Father of Euro


What s euro

What’s Euro?

Official currency of the Eurozone


Euro zone

Euro Zone


Fin243 money and banking section 4 report group 3

  • 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

Coins

Banknotes


Fin243 money and banking section 4 report group 3

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


Fin243 money and banking section 4 report group 3

  • 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


Fin243 money and banking section 4 report group 3

Benefits

&

drawback


The benefits of euro

The benefitsof Euro

Lower transaction rates

Increase trade

Transparency& Competition

Lower bank reserve

Capital Market

Low inflation rates


Drawbacks of euro

Drawbacks of Euro

  • The policies of the members

  • The cooperation of the EEC members

  • Limitation of using Euro

  • External economic factors


Analysis

Analysis

  • exchange rate

  • inflation rate


Fin243 money and banking section 4 report group 3

  • “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

exchange rate variability from 1999 Jan to 2007 Jan.

against GBP


Fin243 money and banking section 4 report group 3

  • 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.


Fin243 money and banking section 4 report group 3

  • 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 jan1

exchange rate variability from 1999 Jan to 2007 Jan.

against US dollars


Fin243 money and banking section 4 report group 3

  • 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

Hong Kong Dollar


Fin243 money and banking section 4 report group 3

  • linking up with the US Dollar

  • similar to the US Dollar.


Fin243 money and banking section 4 report group 3

2003

  • notdrop anymore

  • already meet its target

  • to satiable the exchange rate.


Inflation rates

Inflation rates


Fin243 money and banking section 4 report group 3

  • Inflation  a general rise in prices

  • Pressure on price adjustment

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

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


Fin243 money and banking section 4 report group 3

  • 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

The inflation rate in Euro area and the US


Fin243 money and banking section 4 report group 3

  • From the observe : Euro can

  • successful monetary union

  • low inflation rates

  • price stable

  • productive

  • more investment & consumption

  • Export & import

  • Avoiding loss from emancipated inflation


Fin243 money and banking section 4 report group 3

  • Monetary policy

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

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


Fin243 money and banking section 4 report group 3

  • Shrink the inflation rate in Euro &US

  • Keep the inflation rate in an acceptable level


Conclusion

Conclusion


Fin243 money and banking section 4 report group 3

  • official currency of the Euro zone

  • process of triangulation


Analysis of euro

analysis of Euro

  • Exchange-rate

    2003

    not drop anymore

    stable

  • The Inflation rate

    keep in the low level

    no affect the market

    stable


Fin243 money and banking section 4 report group 3

  • Euro seems work in some countries

  • Lots of benefits

  • Cannot omit the drawbacks

  • Deep consideration in taking as role model


Fin243 money and banking section 4 report group 3

END


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