InformedTrades
Register as a Member
    Why join? See our testimonials.

Register Front Page See Today's Posts Site
Map
Free Trading
Courses
Shop
Front Page > Forum Central (F1) > David's Corner > Free Trading Courses

 
Thread Tools Search this Thread Display Modes
Old 06-11-2008, 11:21 AM   #1 (permalink)
InformedTrades Founder
Community Host
 
David Waring's Avatar
 
Join Date: Nov 2007
Location: Miami, FL
Posts: 5,622

Thanks Stats
Thanks (Given): 0
Thanks (Received): 109

A Trader's Introduction to the Euro Part 1


Previous Lesson

In my opinion Forex Capital Markets (FXCM) offers the most comprehensive services, and best trading experience in the forex industry.



Next Lesson - Full Forex Trading Course

In our last lesson we finished up our discussion of the US Dollar, with a look at some of the economic indicators which move the currency, and where traders go for commentary on those numbers. In today's lesson we are going to begin our discussion on the next most traded currency in the world, the Euro.
The Euro is now the official currency of 15 of the 27 member states in the European Union (EU), which makes it the currency used by over 320 Million people. Like Europe itself, the Euro has an interesting history, which we as traders must understand to have a full understanding of the fundamentals of the currency. There are two major factors which lead to the eventual formation of the European Union, and therefore the Euro, which are important for traders to understand.

1. The major powers in Europe had been battling each other for hundreds of years prior to World War II. Nothing like the decimation that the World Wars brought to Europe had ever been seen before however, so after World War II, there was a realization that a drastic reordering of the political landscape was needed, in order to put nationalistic rivalries to bed once and for all.

2. Also as a result of World War II, the world's power structure had shifted, and the major European countries who were once the superpowers of the world, were replaced by two new superpowers. The United States and The Soviet Union were now the unrivaled superpowers of the world, and as a result there was a keen awareness among the former world powers of Europe, that banding together was the only way for Europe to have comparable clout on the world stage.

It was primarily as a result of these two factors that the European Coal and Steel Community (which eventually became the European Economic Community, the predecessor to the European Union) was founded in the 1950's with the general goals of:

1. Lowering trade barriers and facilitating economic cooperation for the benefit of the member nations.

2. Increasing Europe's clout on the world stage

3. Integrating the economies of the major countries in Europe to the point where they were too reliant on one another to go to war again.

During the next several decades many things happened from a diplomatic and trade standpoint that are very interesting, and which can be read about by doing a search on google for the history of the European Union. The next important event for us as traders however, came with the ratification of something which is known as the Maastricht Treaty in the 1990's. Up to this point, the idea of a tie up between nations in Europe was primarily focused on removing trade barriers and promoting economic cooperation. With the Maastricht treaty, member countries moved from a simple economic cooperation, to the much grander ambition of political integration between member nations.

This is important to us as traders as it was here that plans for a single currency to be used among member nations was introduced, and therefore here that the basic fundamentals of the Euro were laid out. There were three steps outlined in the Maastricht treaty that had to be completed before the currency could be released which were:

1. Free circulation of capital among member countries.

2. The second, and most important step for us as traders to understand, was the coordination of economic policies. Once the Euro was introduced, each of the member countries would be bound by the monetary policy as set by the European Central Bank. With this in mind, you could not have countries with extremely different levels of inflation and interest rates, replace their currency with the Euro, without undermining the credibility and fundamentals of the currency. To make the currency credible, and to make its introduction as smooth as possible, member countries were required to keep inflation, interest rates, and debt below certain levels. Lastly, they were also required to maintain an exchange rate that was basically a banded peg, allowing their currency to fluctuate only within a narrow band.

3.
In 1999 the European Central Bank was established and the eleven countries listed here began to use the Euro in electronic format only.

Spain, Portugal, Italy, Belgium, the Netherlands, Luxembourg, France, Germany, Austria, Ireland and Finland.

These countries formed what is known as the European Monetary Union, which is comprised of countries who are members of the European Union, and use the Euro as their currency.

Greece, the United Kingdom, Sweden, and Denmark (the other members of the European Union at the time) remained outside the European monetary Union for different reasons.

While this may seem a bit like a history lesson rather than a lesson in trading, it is very important for traders of the Euro to have an understanding of the history we have just gone over. As we will learn in coming lessons, it is because of this history that the Euro is where it is today, and many of the concepts we have just outlined still affect the value of the currency in today's market.

That's our lesson for today, in our next lesson we will continue our discussion of the Euro, with a look at what happened when the Euro was officially introduced, and how the European Union and European Monetary Union have expanded since the introduction of the currency.

As always if you have any questions or comments please leave them in the comments section below, and good luck with your trading!

David Waring is offline   Reply With Quote
 
Old 06-12-2008, 09:30 PM   #2 (permalink)
 
rocketman7's Avatar
 
Join Date: Jan 2008
Location: California
Posts: 184

Thanks Stats
Thanks (Given): 0
Thanks (Received): 0

Euro dollar


Thanks Dave - never really knew the history of the Euro before.

Slightly OT, I was in Italy and France last year and there isn't a paper 1 Euro. They have coins in 1 and 2 Euro increments. Initially I didn't think I would like that but after a few days of being there I think it's a great idea and we should get rid of the US paper $1 and go to a coin.

rocketman7
rocketman7 is offline   Reply With Quote
 
Old 06-13-2008, 07:56 AM   #3 (permalink)
InformedTrades Founder
Community Host
 
David Waring's Avatar
 
Join Date: Nov 2007
Location: Miami, FL
Posts: 5,622

Thanks Stats
Thanks (Given): 0
Thanks (Received): 109

Quote:
Originally Posted by rocketman7 View Post
Thanks Dave - never really knew the history of the Euro before.

Slightly OT, I was in Italy and France last year and there isn't a paper 1 Euro. They have coins in 1 and 2 Euro increments. Initially I didn't think I would like that but after a few days of being there I think it's a great idea and we should get rid of the US paper $1 and go to a coin.

rocketman7
Hey Rocketman7,

Yeah I am mixed on the whole coin thing. I tend to be the type that carries a bunch of change and I find that my pocket gets kind of heavy. If I remember correctly the pound was heavier than the Euro so maybe it wasn't as bad outside of the UK.

They released that indian head dollar a few years ago here, you can still get them as change in the NY subway but outside of that don't see them much.

Hope things are going well.

Best,
Dave
David Waring is offline   Reply With Quote
 
Old 05-27-2009, 05:20 AM   #4 (permalink)
 
Demolition Man's Avatar
 
Join Date: Jan 2009
Location: Finland
Posts: 213

Thanks Stats
Thanks (Given): 0
Thanks (Received): 0

Before the introduction of the Euro, we had coins of 5 and 10 Finnish marks, which were a little under 1 and 2 euros at the time. So, that stuff goes way back over here. Sometimes you notice your wallet is starting to get fat with all the coins in there but basically you have only yourself to blame for it, since you paid your 6-euro shopping with a bill of 20 instead of the three 2 euro coins you already had. And if you always use cash like that, it doesn't really matter what kind of coins there are, they're gonna stack up in your wallet eventually.

Most people, however, use credit or debet cards instead of cash so they don't have that problem.

With vending machines, the large value coins are actually quite convenient, really.

By the way, the 1 and 2 cent coins are not in use in Finland. You can pay with them, but stores don't give them out as change. In practice, the smallest coin over here is 5 cents.
Demolition Man is offline   Reply With Quote
 
  




Tags
euro introduction

Help InformedTrades grow. Click +1 if you enjoyed this thread.

Register to Comment
Thread Tools Search this Thread
Search this Thread:

Advanced Site Search
Display Modes

Posting Rules
You may not post new threads
You may post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are Off



All times are GMT -5. The time now is 02:25 PM.


Creative Commons License

InformedTrades is dedicated to empowering traders with knowledge. Learn more about our mission statement, and our charity endeavors.

Powered by vBulletin® Version 3.8.5
Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.
Search Engine Optimization by vBSEO 3.3.2
vBulletin Optimisation by vB Optimise (Reduced on this page: MySQL 7.14%).
vBCommerce I v2.0.0 Gold ©2010, PixelFX Studios
vBCredits v1.4 Copyright ©2007 - 2008, PixelFX Studios