The Euro Essay Research Paper To the — страница 5

tourism industry is also likely to receive a large surge due to the elimination of monetary conversion costs. Travelers will now be able to move between member nations without losing a significant percentage of their travel funds to monetary conversion costs. Financial advisors that are familiar with large markets are also expected to benefit greatly. It is expected that large international firms that are familiar with the American and Japanese markets will receive many new clients, and financial consulting revenues are expected to skyrocket (Chabot, 1999:129-130).Industries That May Sacrifice. Industries that are most vulnerable to the potentially troublesome results of the euro have several common characteristics. The euro presents extremely high levels of risk to industries

that must make large currency management and training investments or are directly involved in business activities related to currency, such as banks and investment firms. The euro also imposes high levels of risk on businesses that are vulnerable to the opening of European markets and the drastic increase in cross-border competition that will occur as a result. Business enterprises that are extremely sensitive to changes in the interest rate of Euroland are experiencing extremely high levels of risk because the euro and the European Central Bank is a new financial leader and has no previous history to review. Those companies trying to predict the decisions of the ECB with regard to interest rates will likely be playing a guessing game for the first couple of years. According to

KPMG, the business markets that are most sensitive to the introduction of the euro are the insurance, telecommunications, utilities and pharmaceuticals industries (Chabot, 1999:130-132). The banking industry is the enterprise that will suffer the most from European monetary unification for three reasons. First, because money is the primary product of the banking industry, banks and other financial institutions will have abnormally high transition costs. Every document produced by the banking industry involves money, and every document must be adjusted to reflect the euro. The European Banking Federation estimates that the banking industry will pay approximately $11 billion annually for transition costs. Second, as 11 national currencies unify and become one, banks will be losing

a significant amount of foreign exchange revenues, estimated to be $350 billion daily (22 percent of the world s foreign exchange market). Price Waterhouse estimates that the banking industry will lose 50 percent of their foreign exchange business and 60 percent of bond arbitrage trading revenues. The Bureaux de change will lose $1.9 billion (two-thirds) of its annual revenues by 2010. The final reason that banks will suffer is simply increased competition for all types of lending and savings rates. It is expected that the European banking industry will drastically reduce in size over the next few years. The increased competition will encourage many mergers of competing banks and the elimination of noncompetitive financial firms (Chabot, 1999:130-131). Many local European

businesses that do not perform services for clients internationally, such as local grocers, bakers and restaurants, will incur significant costs to incorporate the euro into their business systems, but will not receive any benefits, such as serving a larger market. For example, a local grocer in Paris is not likely to attempt to expand their business into the markets of Italy or Germany. However, the grocer must make significant changes to the business computer systems and other equipment, such as the cash registers, to incorporate the euro into their business activities (Chabot, 1999:130-131).International Investors European monetary unification has unified its members economically in many ways. However, investors must recognize that the diversity of the financial markets of EMU

member nations has not been removed entirely. Like the 50 states in America s economy, the 11 EMU nations will continue to have different climates, economies and products that they produce better than any other nation. Consequently, investors will continue to benefit from investing in European companies that are operating in the EMU nations that are performing best financially (Chabot, 1999:151-152). Due to the release of a single European currency and fixed exchange rates, investors, security analysts, brokers and investment fund managers will no longer need to assess exchange rate risk when considering the purchase of European stocks and bonds. Companies can now be assessed for investment purposes simply based on their financial history and predictive forecasts. The European