Exchange Rate Analysis

Running head: EXCHANGE RATE ANALYSIS
Exchange Rate Analysis
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EXCHANGE RATE ANALYSIS
1
Table of Contents
Answer to Question 1(a):...........................................................................................................2
Answer to Question 1(b):...........................................................................................................2
Answer to Question 1( c ):.........................................................................................................3
Answer to Question 2:................................................................................................................3
Answer to Question 3(a):...........................................................................................................3
Answer to Question 3(b):...........................................................................................................3
Answer to Question 4:................................................................................................................4
Answer to Question 5:................................................................................................................4
Answer to Question 6 (a):..........................................................................................................4
Answer to Question 6(b):...........................................................................................................5
References:.................................................................................................................................6

EXCHANGE RATE ANALYSIS
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Answer to Question 1(a):
The benefits of the Euro for the member countries is:
 It eliminates the risk of exchange rate fluctuation which will arise by the different
currency.
 The member countries are in a more stable economic environment making
investments in the member countries safe.
 The stability of a single currency enables the member countries government to make
plans for the future.
 The European Union when uses a single currency makes the member countries having
a stronger presence in the world economy ( Dessimirova and Paternoster 2019).
Answer to Question 1(b):
Before the admission of Greece in the European Union it faced several problems, and
its admission in the European Union was a hope for Greece to be saved from its financial
problems. Euro being a more popular currency then Drachmas attracted lower interest rates
for the Greek economy. The Greeks were now being able to borrow at a lower interest rate
from the world because of using Euro as a currency. Also the Greeks lied for being able to
enter the Eurozone violating the Maastricht Treaty, as the level of debt was above the
acceptable level. Thus the use of single currency for different economy can have a situation
like the Greek crisis, as the major lenders to the Greeks were banks from Germany. Also the
level of productivity of the Greeks was less than the economy in Germany. Thus using Euro
as its currency lowered the competitive advantage of the Greeks in the global market. Thus
two drawbacks are shown by the Greek crisis of using a single currency as it reduces the
interest rate for an economy which is overflowed with debt and it reduces the competitive