Title: Single Currency: Pros a& Cons
Headings: Advantages and Disadvantages of a Single Currency.
Advantages and Disadvantages of a Single Currency.
Content: Single Currency: Pros a& Cons
Advantages and Disadvantages of a Single Currency. Eliminate exchange rate fluctuation. Businesses who operate within the European Currency area would no longer have to worry about exchange rate fluctuations. In the past a German firm who traded with Italy would have to worry about how much 1 Deutschmark exchange for Italian Lire. If payment were to be settled in the future, exchange rate fluctuation could either mean that the German firm pay more or less in term of Deutschmark for its Italian ordered placed in the past, say a month ago. Obviously the German firm would not like to pay more in Deutschmark a month from now for the same order. To get over this problem, the firm could "hedge" the currency, that is, it would buy from the market for the delivery of a certain amount of Italian Lire (say Lire 50 billion) for a definite price in Deutschmark. This "perfect answer" come with a "hedging costs" that the firm has to pay. A survey in Europe found that exchange rate fluctuations affected small businesses more than big multinationals.