ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
Several European countries have adopted the euro as a single currency. Which is a direct benefit to a business trading between two of these countries?
The business benefits from the elimination of exchange rate risk on trade between member countries. With a single currency there is no conversion between them, so no exposure to rate movements. Members cannot set their own interest rates, and the euro gives no protection against outside tariffs.
- AElimination of exchange rate risk on trade between themCorrect
- BFreedom to set its own national interest rate
- CProtection from tariffs imposed by countries outside the euro area
Explanation
Using one currency removes conversion costs and exchange rate risk between member countries. Individual members cannot set their own interest rates, as monetary policy is set centrally by the European Central Bank. The euro does not protect against external tariffs.
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