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International Financial Management

Study of global financial operations and cross-border transactions

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    Unit 1: Individual Project International Financial Management Discuss the advantages and disadvantages of a nation maintaining its own currency versus adopting a common currency like the Euro within the European Economic and Monetary Union (EMU). In your response, include a detailed analysis of the impact on trade, sovereignty, inflation, political agendas, and economic stability. Additionally, evaluate the history, functions, and member countries of the EMU, and whether its establishment has aided or hindered the development of European nations. Word count requirement: 1,500 - 2,000 words.

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    Abstract This paper will d iscuss several advantage and disadvantage when a nation wants to maintain its currency and it will also discuss the history of EMU, the function and as well as the countries that are involve in the EMU. It will also discuss whether or not the EMU helped or hindered the development of the European nation. When a country wants to maintain their currency, it can have some advantage as well as some disadvantage. Some the advantages are; eliminating transaction cost, price transparency, uncertainty caused by exchange rate fluctuations elimination, prevention on war, Increased Trade and reduced costs to firms, political agenda and inflation. Eliminating transaction cost: Because U.K currently spend about 1.5 billion in Euro a year buying and selling foreign currencies to do business in the EU with EMU this is eliminated, therefore increasing profitability of the EU firms by eliminating transaction cost. Price transparency : EU firms and households often find it difficult to accurately compare the prices of goods, services and resources across the EU because of the distorting effects of exchange rate differences. This discourages trade. According to economic theory, prices should act as a mechanism to allocate resources in an optimal way, so as to improve economic efficiency. There is a far greater chance of this happening across an area where E.M.U exists. Uncertainty caused by Exchange rate fluctuations eliminated: Many firms become wary when investing in other countries because of the uncertainty caused by the fluctuating currencies in the EU. Investment would rise in the EMU area as the currency is universal within the area, therefore the anxiety that was previously apparent is there no more. Prevent war: The EMU is, and will be a political project. It's founding is a step towards European integration, to prevent war in the union. It's a well known fact that countries who trade effectively together don't wage war on each other and if EMU means more happy trade, then this means, peace throug hout Europe and beyond .

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