WHY TRADE THE EURO CURRENCY?
The EURUSD is the most actively traded of all pairs available on the Foreign Exchange
markets globally. This fact alone ensures both volatility (that is, prices will fluctuate with sufficient standard deviation to make trading profitable) and liquidity (the ability to enter and exit the market quickly at a specified price).
HISTORICAL PERSPECTIVE
On January 1, 1999, 11 of the countries in the European Economic and Monetary Union
(EMU) decided to give up their own currencies and adopt the new Euro (EUR) cur-
rency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain. Greece followed on January 1, 2001. The Vatican City also participated in the changeover. This changeover is now complete.
It is worth noting that any place that previously used one or more of the currencies
listed below has now also adopted the Euro. This applies to the Principality of Andorra, the Principality of Monaco, and the Republic of San Marino. This of course applies automatically to any territories, departments, possessions, or collectivities of Euro-zone countries, such as the Azores, Balearic Islands, the Canary Islands, Europa Island, French Guiana, Guadeloupe, Juan de Nova, the Madeira Islands, Martinique, Mayotte, Reunion, Saint-Martin, Saint Pierre, and Miquelon, to name just a few.
Euro bank notes and coins began circulating in the above countries on January 1,
2002. At that time, all transactions in those countries were valued in Euro, and the “old” notes and coins of these countries were gradually withdrawn from circulation.
ISO stands for the International Standards Organization. Most outgoing pre-Euro
currencies will still be physically convertible at special locations for a period of several years. For details, refer to the official Euro site (www.euro.gov.uk).
Also note that the Euro is not just the same thing as the former European Currency
Unit (or ECU), which used to be listed as XEU. The ECU was a theoretical basket of
currencies rather than a currency in and of itself, and no ECU bank notes or coins ever existed. At any rate, the ECU has been replaced by the Euro, which is a bona fidecurrency.
A note about spelling and capitalization: the official spelling of the EUR currency
unit in the English language is “euro,” with a lower case “e.” However, the overwhelmingly prevailing industry practice is to spell it “Euro,” with a capital “E.” Since other currency names are capitalized in general use, doing so helps differentiate the noun “Euro,” meaning EUR currency, from the more general adjective “euro,” meaning anything even remotely having to do with Europe.
BANKNOTES AND COINS
On January 1, 2002, the euro coins came into circulation. The eight denominations of
coins vary in size, color, and thickness according to their values, which are 1, 2, 5, 10, 20, and 50 cent, or EUR 1 and EUR 2. One euro is divided into 100 cents.
One side of each coin features one of three designs common to all 12 euro area
countries; these designs show different maps of Europe surrounded by the 12 stars of
the European Union.
Sophisticated bi-metal technology has been incorporated into the EUR 1 and EUR 2 coins which, together with lettering around the edge of the EUR 2 coin,
prevents counterfeiting.
Also on January 1, 2002, the euro banknotes were put into circulation with the fol-
lowing stipulations: There are seven new banknotes; they have the same design
throughout Europe; each banknote has a different color and different size; the EUR 5 is the smallest banknote and the EUR 500 the biggest. The banknotes that circulate in denominations of EUR 5, 10, 20, 50, 100, 200, and 500 have pictures of windows, arches, gateways, and bridges on them as well as a map of Europe and the European flag.
14.89 billion euro banknotes have been produced; 10 billion were needed to replace
the national banknotes in circulation and nearly 5 billion are to be held in reserve.
EURO CURRENCY VERSUS EURO DOLLAR
The Euro currency contract is a futures contract of the Euro, the currency in circulation in EMU member nations. The contract size is 125,000 Euros, the minimum fluctuation is $ 0.0001, one point equals $12.50, and contract duration is six months with delivery months in March, June, September, and December.
The Euro dollar futures contract is a time deposit having a principal value of
$1,000,000 with a 3-month maturity and is categorized at the exchange as an interest
rate rather than a currency. It is based upon the number of U.S. dollars deposited in European banks. Trading contracts occur in each calendar month and each point equals $25.00.
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