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Eurobanking, the strategic issues

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The purpose of the paper is twofold. Firstly, it helps to identify how, besides an obvious fall in revenue from intra-European currencies trading, a single currency will alter fundamentally and permanently European banking markets. A common currency will change the sources of competitive advantage in various markets such as those of government bonds and of the fast growing interest rate derivative markets, of corporate bonds and equities, of foreign exchange, and of fund management. The paper evaluates whether an international reserve currency status matters for European banks, and provides an assessment of the impact of the single currency on loan credit risk and on bank profitability in a low inflation environment. Secondly, the paper identifies the strategic options available to financial services firms.

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