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Birth of Euro and Impact on Foriegn Trade

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    Birth of EURO and Its Impacton World Trade

    Study of Birth of EURO and also Analysis on Role of EURO

    as Global currency has been done. Comparison of Euro vis-

    -vis Global currencies like US$, JPY, UK Sterling on the

    basis World Debt Market, Derivatives, Global Reserves etc..

    Also a study has been made on how Euro can take over

    US$ as Global Currency

    Submitted to:

    Prof. Vivek Bhatia

    Professor, ICF

    FORE School O Mana ement

    Group -1 (FMG-18Y)

    Aakriti Kakkar 91001

    Aditi Bindlish 91003

    Ankit Gupta 91006

    Madhusudan 91029

    Pragati Saraf 91040

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    International Corporate Finance| Group 1| Euro and its Impact on World Trade 2

    Table of ContentsList of Figures and tables ........................................................................................................................ 3

    Evolution of the European Union (EU) .................................................................................................... 4

    BIRTH OF THE EURO ................................................................................................................................ 7CURRENCY SIGN ...................................................................................................................................... 9

    COINS AND BANK NOTES ........................................................................................................................ 9

    INTRODUCTION OF CURRENCY ............................................................................................................. 10

    DIRECT AND INDIRECT USAGE .............................................................................................................. 11

    Use as reserve currency ........................................................................................................................ 12

    THE EURO IN GLOBAL MARKETS ........................................................................................................... 12

    The Euro in International Debt Markets ........................................................................................... 12

    Narrow Versus Global Measure: The Currency Composition of International Debt Securities

    Markets In 2009 ................................................................................................................................ 12

    The Euro in International Derivatives Market .................................................................................. 15

    The Euro in Global Foreign Exchange Reserves ................................................................................ 17

    Euros Exchange Rate: The Trend ......................................................................................................... 20

    Reserve Currency Determinants ........................................................................................................... 21

    International Use of the Euro So Far..................................................................................................... 22

    Factors that suit a currency for International Status: ........................................................................... 24

    What role will the euro play as a reserve currency? ............................................................................ 27

    The euro may benefit from the dollar weakness .................................................................................. 27

    Central banks rising investment requirement ..................................................................................... 29

    Focus on yield of foreign exchange reserve investments ..................................................................... 29

    What will happen to the euros role as a reserve currency after 2010? .............................................. 30

    Appendix 1 ............................................................................................................................................ 32

    Appendix 2 ............................................................................................................................................ 33

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    International Corporate Finance| Group 1| Euro and its Impact on World Trade 3

    List of Figures and TablesFigure 1 Evolution of EU .......................................................................................................................... 4

    Exhibit 1 Fixed Exchange Rates -Euro Countries .................................................................................... 8

    Figure 2 Map of Euro area .................................................................................................................... 11

    Figure 3 Proportion of Currencies in International (Narrow, Constant Rate) ...................................... 13Figure 4 Proportion of Currencies in International (Global, Constant Rate) ........................................ 13

    Figure 5 Proportion of Currencies in International (Narrow, Current Rate) ......................................... 14

    Figure 6 Proportion of Currencies in International (Global, Current Rate) .......................................... 14

    Figure 7 Amounts outstanding of OTC Single-currency Interest Rate Derivatives ............................... 15

    Figure 8 Amounts outstanding of OTC Single-currency Interest Rate Derivatives - Amount ............... 16

    Figure 9 Amounts outstanding of OTC Single-currency Interest Rate Derivatives - Proportion .......... 16

    Figure 10 Composition of Various Currencies in Global Reserves ........................................................ 18

    Figure 11 Proportion of Euro in Global Reserves .................................................................................. 19

    Figure 12 Comparison of Share on Euro, Yen, USD in Global Reserves ................................................ 19

    Figure 13 Exchange Rate of Euro ........................................................................................................ 20

    Figure 14 Exchange Rates- Global Currencies ....................................................................................... 21

    Figure 15 Currency Distribution- Market Turnover .............................................................................. 23

    Table 1 ................................................................................................................................................... 24

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    International Corporate Finance| Group 1| Euro and its Impact on World Trade 4

    Evolution of the European Union (EU)

    Figure 1 Evolution of EU

    European Coal and Steel Community (ECSC)

    The origin of the European Union goes back to the European Coal and Steel Community(ECSC),

    which was formed with the then West Germany, France, Italy, Belgium, Netherlands and

    Luxembourg in 1952.

    After World War II, moves towards European integration were seen by many as an escape from

    the extreme forms of nationalism which had devastated the continent. One such attempt to

    unite Europeans was the European Coal and Steel Community which, while having the modest

    aim of centralised control of the previously national coal and steel industries of its member

    states, was declared to be "a first step in the federation of Europe".

    Main aim:

    Centralised control of the previously national coal and steel industries of its member

    states

    To eliminate import duties and quotas on coal, iron ore and scrap regarding the

    international trade among member countries.

    European Economic Community or European common market

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    International Corporate Finance| Group 1| Euro and its Impact on World Trade 5

    Successful functioning of ECSC stimulated the member countries to extend this facility to all

    commodities by the Treaty of Rome in 1957.

    Originally six countries viz, France, Federal Republic of Germany, Italy, Belgium, Netherlands

    and Luxembourg formed into the EEC by Treaty of Rome, 1957.

    The European Economic Community came into existence as a customs union or common

    market in 1958 among the same six nations.

    Later the number of member countries increased to nine on January 1, 1973 as United Kingdom,

    Ireland and Denmark joined the community. Countries such as Greece, Spain, Australia, Finland

    and Portugal joined later on.

    In 1979, under the influence of Helmut Schmidt, then chancellor of Germany, and Valry

    Giscard-dEstaing, then president of France, eight original member countries set up theEuropean Monetary System (EMS) as a zone of monetary stability with linked exchange rates.

    The EMS became, in effect, a German mark zone, since its members pegged their exchange rates

    to the mark and therefore found it necessary to base their monetary policy on that of the

    Bundesbank.

    Both inflation and interest rates tended to converge among EMS countries.

    In 1986, the so-called Single European Act aimed to free the movement of goods, services,

    capital, and people among EU countries b

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