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gains or losses resulting from the translation process will be reflected in the current period income statement (KPMG, 1999). Comparative Financial Statements. The Securities and Exchange Commission (SEC) has issued an opinion (Topic No. D-71) that encourages American corporations that are changing their reporting currency to the euro to perform historical recasting of financial data that is released for the purposes of comparison (Chabot, 1999:142-143). Continuity of Contracts There is little substantive risk of contracts being discontinued as a result of the introduction of the euro on the grounds that they have become impossible to carry out or that their purpose has been frustrated. However, parties to contracts remain free to agree that the continuity terms of the EC

legislation do not apply if they wish to do so (Euro, 1998). Contracts Between Member Nations. Article 7 of Regulation No. 974/98 forbids contracting parties from altering or terminating a contract because of the introduction of the euro. EC legislation stipulates that the euro shall be substituted for the currency of each participating member nation at the conversion rate . This statement was issued to guarantee a link between the national currencies and the euro. To guarantee the continuity of contracts in non-member nations, EC legislation is relying on the principle of the state theory of money . This principle holds that each Nation determines the legality of their currency. This principle is universally accepted, and therefore, should ensure contract continuity even in

non-member nations (European, 1997b). Contracts With the U.S. In the U.S., some states have begun legislation that will permit an automatic substitution of the euro for the outgoing national currency. If euro substitution is not allowed, contracts denominated in foreign currency that will be replaced by the euro will become invalid. A contract that is legally terminated could create a gain or loss that would need to be recognized for tax purposes (KPMG, 1999). Force Majeure Clauses. When extenuating circumstances beyond the control of parties prevent performance or change the circumstances of the contract; force majeure clauses justify this non-performance. Unless a clause in a contract refers specifically to the euro, a conversion to the euro should not lead to the

non-performance of a contract. EC legislation has ensured that obligations in a national currency can be settled in the euro (European, 1997b). Increased Costs. Generally, contracts have clauses that allow lenders to pass on increased loan costs to the borrower. The changeover to the euro should not cause increased costs. Although, if there are regulatory changes after the introduction of the euro, increased costs of refinancing could be passed on to the borrower (European, 1997b).Industry Outlook The four key economic benefits of European monetary unification are elimination of exchange rate rise, decreased conversion costs, price transparency and increased market size. When exchange rates are not stabilized, the risk for foreign purchases and investments is extremely high.

European monetary unification stabilized exchange rates on January 1, 1999. Consequently, the financial risk associated with the fluctuation of monetary exchange rates is eliminated. European monetary unification will greatly decrease conversion costs, which absorbs a large amount of European sales dollars every year. According to the European Commission, European businesses pay $12.8 billion annually for conversion costs. When Euroland adopts a single currency, it will become much easier for the European consumer to compare prices between countries. For example, for a consumer to compare prices of a BMW car in Italy and Germany accurately, complex monetary conversions must be made between the German mark and the Italian lira. When Germany and Italy are both using the euro;

prices can easily be compared to each other. The final advantage of European monetary conversion is the increased size of all European markets. Rather than serving the market of a single country, businesses will have the option to expand and serve the markets of ten other nations. This will increase competition in all European markets, and result in lower cost for Euroland citizens (Chabot, 1999:39-44). Industries That May Profit. As a result of the euro s release, several markets are expected to receive a large increase in sales. Many businesses will need to update their computer software and hardware systems that allow the incorporation of the euro. Consequently, the computer and software industry is expected to receive a large surge of sales and demand for products. The