ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
Which of the following is an advantage to a business of operating within a single currency trading bloc such as the eurozone?
The main advantage is the removal of exchange rate risk and conversion costs on trade between member countries, since all use the same currency. Members give up independent interest rate policy and the option to devalue, and competition from other members actually increases.
- AElimination of exchange rate risk on trade between member countriesCorrect
- BFreedom for each member to set its own interest rates
- CAbility to devalue the national currency to boost exports
- DProtection from all competition from other member states
Explanation
A common currency removes conversion costs and exchange rate uncertainty on trade between members. Independent interest rates and devaluation are lost when a currency is shared, and a bloc increases rather than removes competition.
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