European monetary union is based on the assumptions of presence of fixed exchange rate, free movement of capital and coordinate monetary policy. Fixed exchange rates are preferred by producers and consumers of the European economy, since the economy becomes more predictable. In such market conditions, it is easier to foresee the future and plan the actions that are to be taken up in the future. The second assumption - free movement of capital - is crucial for optimizing the use of capital and for enlarging the benefits that come from it. The third assumption is coordinate monetary policy; its role is vital in creating monetary union, since it ensures that the countries participating in the union have the same aims and together strive to make the union work for the benefit of every single country.
Firstly, I would like to concentrate on the benefits of introducing Euro. The implementation of a fixed exchange rate brings about the end of currency or currencies instability. There are no more fluctuations and because many countries are in the union, the money used is much more stable. Thanks to this, the economies are more resistant to speculations. This in turn helps the consumers and producers because they do not need to worry about the changes in prices caused by flexible exchange rates. Secondly, when it comes to international trade, it is easier to predict future market and implement necessary changes, make adjustments and obviously decrease the costs. For instance, companies which trade internationally need not spend extra money on administrative costs of accounting for currency fluctuations. Lower costs lead to growth and development of those companies. Thirdly, when there is a single currency there is no need for hedging, this particular precaution is taken by companies that have to protect themselves from the unfavorable effects of flexible exchange rates. Hedging is obviously costly, so if it can be avoided the companies are better off. In other words,...
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