So, assuming exchange risk is a big factor, consider whether joining the Euro will actually reduce it or not and if so by how much. Here we immediately trip over the key point that joining the Euro is not to join a world currency but a regional one. Unfortunately for our exchange risk we trade very heavily with the dollar area. Let us not get tied up in the vexed question of the exact shares of our trade with Europe and with the USA, and what sorts of trade should be counted (in goods? in goods and services? or in all cross-border transactions including foreign investment and earnings on them?). The point is that if we regard exchange risk as a sort of tax on transactions involving exchanging currency, then it is plain that the broadest definition should be used for the trade' affected by this tax. Most of the world outside Europe either uses the dollar or is tied to it in some formal or informal way. We might then say, in a rough and ready way, that we trade and invest half with the Euro area and half with the dollar area.
It so happens that the Euro/dollar exchange rate has been highly variable for a very long time - see Figure 1 which shows the DM/dollar rate up to January 1999 and... [continues]
Cite This Essay
(2007, 10). Should Britain Join the European Union. StudyMode.com. Retrieved 10, 2007, from http://www.studymode.com/essays/Britain-Join-European-Union-122669.html
"Should Britain Join the European Union" StudyMode.com. 10 2007. 10 2007 <http://www.studymode.com/essays/Britain-Join-European-Union-122669.html>.
"Should Britain Join the European Union." StudyMode.com. 10, 2007. Accessed 10, 2007. http://www.studymode.com/essays/Britain-Join-European-Union-122669.html.