Transcript ECB & EMU

 The
Executive Board: This is a full-time
executive board made up of a
president, a vice president and four
other nominees.
 The General Council: This is the
Executive Board plus the governors of
all of the Central Banks in the EU.
 The Governing Council: This is the
Executive Board plus the governors of
the Central Banks of the Eurozone
Countries.

Main refinancing operations (MROs): These are
open market operations with credit institutions (banks) to
provide liquidity, cash, for them.

The Marginal Lending Facility: Allows banks to
borrow on an overnight basis.
 The Deposit Facility: This allows banks to make overnight
deposits
 Minimum reserve requirements: This lays down the
minimum deposit which all banks must have with their
national Central Bank
 The
purchasing power parity
theory: states that in a free
market the rate of exchange will
settle at the point where Internal
Purchasing Power= External
Purchasing Power.
 The
balance of payments: If
the value of a country’s exports is
greater than the value of its
imports the price of the currency
will increase and vice versa.
 The
role of speculators: If
speculators feel that a
currency will increase in value
then they will buy up this
currency, increasing it’s
demand and price.
 The
role of multinational
companies: If a branch of a
multinational company in one
country has spare cash and
another branch in a different
country is in need of cash, then
they will transfer the spare cash to
save interest charges on
overdrafts. This will create a
supply of one currency, bringing
down its value, and a demand for
the other, increasing its value.
 Intervention
by Central Banks:
If a Central Bank feels that the
rate of exchange of its currency
on the international market id
either too high or too low in
relation to the preformance of its
economy, then it can use it’s own
resources to either buy or sell its
currency on the international
market.
 International
agreements:
Counties that are members of a
trading group will agree to
accept each other’s currency at
fixed rates of exchange in order
to eliminate the exchange rate
risks involved in international
trade.
They eliminate the exchange risk
involved in importing on credit.
2) They eliminate the risk involved in
international borrowing.
3) Fixed rates of exchange make
speculation in currencies futile.
1)
1.
2.
Countries may have to use up large
amounts of their foreign reserves to
intervene on the international
markets to maintain the value of the
currency at the fixed rate.
Governments may have to
implement policies which are
detrimental to the requirements of
their own economy.
The currencies will automatically reach its
real value on the international market,
which reflects the state of the economy.
2) Countries don’t have to use their foreign
reserves to intervene on the international
markets.
3) In the long rum, the balance on the
current account in the balance of
payments can be brought into equilibrium.
1)
1)
2)
3)
The element of uncertainty in
importing on credit could result in a
reduction on international trade.
Borrowing on the international market
could become expensive.
Speculation can undermine the real
value of a currency.
 The
establishment of a single currency
 The creation of single monetary policy
 Co-ordination of economic and
budgetary policies.
On The Consumer:
Foreign travel
 Inflation
 Price Comparisons
 Greater Choice of Financial Products
 Greater Awareness and Competition
 Prudent Management of the Economy
 Low Interest Rates on Loans
 Savers Benifit

In The Commercial Sector:
 Exchange Risk Eliminated
 Easier Payment For Trading
 Lower Interest Rates
 Cost Of Imported Raw Materials and
Capital Goods
 Pressure for the Domestic
Competitiveness
 Increased Trade Opportunities
 Fluctuating Value of The Euro