The Euro Essay Research Paper To the — страница 6
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market will become much more similar to the American stock market because all Euroland stocks can be compared to each other without considering the exchange rates of the two member nations (Chabot, 1999:153).Because of the stabilization of European exchange rates, the magnitude and sophistication of the Euroland financial markets are expected to increase significantly over the next ten years for three reasons. First, the risk and uncertainty of European investments is reduced greatly. As discussed above, exchange rates no longer need to be considered when making Euroland investments. Second, the ability of Euroland national governments to issue bonds is restricted by the Stability Pact, signed by the EMU. Demand for low-risk government bonds is also expected to decrease because the stabilization of European exchange rates lowers the risk for other types of investments that earn interest and dividends more quickly, such as corporate stocks and bonds. Third, young investors welcome high-risk, high-return securities. These investors are expected to purchase high volumes of Euroland private equity opportunities, small-cap IPOs, high-grade corporate bonds, junk bonds and asset-backed securities. Consequently, the value of these investments is expected to experience large gains (Chabot, 1999:152). One question that all investors must consider is whether Euroland securities are a secure long-term investment. Provided the EMU stays united, Euroland corporations are expected to experience significant growth in the next decade. However, many investors are not yet certain that the members of the EMU will stay committed to joining the economies of its members. They fear that the next economic shock experienced by an EMU member will cause the downfall of the EMU and the euro altogether. In other words, will the euro be successfully incorporated into the world financial markets? If investors are confident that the euro will survive future economic shocks experienced by Euroland nations and be the primary currency of Europe in ten years, there is no better time than now to invest in the European stock markets (Chabot, 1999:153-158). Conclusion The ultimate goals of EMU are to establish a single currency for European nations, eliminate price discrepancies between European countries and enable Europe to be viewed as a continent, rather than a group of nations, in the global economy. The EMU continues to search for ways to successfully integrate the economies of the European countries without losing the individuality of each member nation. All international and member nation companies will have to convert to the euro at some point in time and will have to make changes to their accounting systems. When changing accounting systems, organizations will need to take into account the conversion and rounding procedures and the need for dual currency unit invoicing and reporting. Accounting departments must determine which accounts are affected by the euro and prepare to handle sales and purchases using the new currency. International companies and companies in member nations will need to properly record all costs related to the conversion and translation processes. It is advisable for U.S. companies with European subsidiaries to get tax planning advice from a professional concerning the specific issues related to their organization.