The Euro

2. Trading with the Eurozone

The introduction of the euro greatly affects businesses which buy from, or sell to, countries in the eurozone. This includes sectors such as manufacturing, tourism and transport.

2.1 The fluctuating exchange rate between sterling and the euro exposes you to potential currency risk.

• If you commit to sell at a price in euros and the euro weakens against sterling before you receive payment, you will have lost out.
• If you agree to buy at a euro price and the euro then strengthens before you pay, your purchase will cost more.
• Much of this risk can be reduced by slightly increasing your prices to cover potential losses.But take care to keep your prices competitive.
• If a high proportion of your sales or purchases expose you to currency fluctuations, consider 'hedging' your currency risks.
• You can also gain from exchange rate movements. The most important thing is to have a system to manage currency fluctuations.

2.2 You should think about offering a euro price, at least as an alternative, to retain your longer-term competitiveness.

A euro price makes price comparisons easy. Some prices will therefore vary less For example:

• Customers can buy CDs from any country, using the Internet or direct mail. They can identify the least expensive supplier.
• Purchasers of 'big ticket' items, such as cars, can consider purchasing from abroad, if price differences warrant it.
• Some goods and services cannot easily be purchased from abroad. These continue to cost significantly less in some countries (eg perishables such as vegetables).

2.3 Your marketing materials may need to be amended to include prices in euros.

• Consider quoting indicative euro prices in your sales literature.To take account of possible exchange rate changes, add a note saying that the prices are 'correct at the time of going to press, but need to be checked when placing an order'.
• Think about the implications of psychological pricing in euros. Will you round up or down to set an attractive price?For example, £2.99 could equal €4.40, but €4.39 may be a more attractive price.

2.4 You can make or receive payment in euros, exchanging to and from sterling, just as you would in any other currency.

This includes credit and debit card payments.

• Euro notes are available in denominations of €500, €200, €100, €50, €20, €10 and €5.They are identical across the eurozone.
• Euro coins are available in denominations of €2, €1, 50c, 20c, 10c, 5c, 2c and 1c.Each coin has a standard side, which stays the same, and a national side, which varies according to the country of issue. All coins can be used anywhere in the eurozone.
• If you do a lot of business with eurozone countries, consider opening a euro bank account (or a euro credit card account).

2.5 If you make or receive a significant number of payments in euros, your financial and accounting systems should be modified.

• If your existing software permits you to record transactions in foreign currencies, adding the euro to your system is easy.
• If a substantial proportion of your business is done with eurozone countries, consider switching over to accounting in euros. But check you can make payments in euros as well as receive them.
• Older computers may not recognise the € symbol. Consider using 'EUR' on invoices to signify euro amounts instead of the symbol.
• If you prepare your accounts in euros, under new UK regulations you will also be required to pay all UK taxes and duties in euros. Ask your tax adviser for further information, as there is a transitional period for some companies.
• You can now pay all taxes and duties in euros, including arrears. But repayments of tax or duty due to you must still be paid in sterling.