isk between participating currencies. This will be a bonus to international investment in Euroland. Exchange rate risk is potentially troublesome to any consumer, producer, or investor who makes an economic decision today that results in a payoff, or the delivery of the good or service at a later date. Firms have often used hedging techniques in order to protect themselves from these fluctuating exchange rates. By hedging, firms buy the right to exchange foreign currencies in the future for the price that prevails today. But hedging has a price, just as any insurance policy has a price. It is not free and is not available to every business. A second benefit of the euro has been the elimination of transaction costs. Tourists planning European excursions before the euro found themselves with the hassle of many currencies, “each recognized by a small geographic segment of the European Union, and exchangeable only through banks, traveler service offices, and credit card companies for a fee.” The euro eliminates these transaction costs. “It is difficult to estimate exactly how large the euro’s transaction cost savings will ultimately be, but for Europe, a continent in which international trade is vitally important, the savings will be substantial. One European Commission study estimates that, before the euro, European businesses converted $7.7 trillion per year from one currency to another, paying $12.8 billion in conversion charges, or 0.4 percent of European Union GDP.” Increased price transparency is a third benefit of the euro. A single currency makes price difference between goods, services, and wages in different countries more evident. Before the euro, Euroland consumers found it difficult to compare the prices of goods across national boundaries. As a result price discrimination was implemented. No longer will consumers have to think in terms of which exchange rate to apply and the transa...
