Sample Finance Paper on International Economics

Globalization has made many countries to consider forming regional blocks for
trading reasons. MERCOSUR is a regional trade that includes countries in South America.
The member countries include brazil, Argentina, Paraguay, and Uruguay. Venezuela is also a
member state, although its membership was suspended in 2016. The associate countries to the
block include chile, Bolivia, Colombia, Guyana, Peru, Ecuador, and Suriname. Like the EU,
MERCOSUR wants to adopt a common currency (Basnet, & Pradhan, 2017). However, the
member countries must consider particular economic issues before accepting or rejecting the
common currency. This paper discusses the economic issues that must be considered before
the countries decide to adopt a common currency.
The common currency among the member states will encourage more economic
activity and faster growth. This will happen because of the reduced exchange rate volatility
due to a common currency. Exchange rate volatility often causes currency fluctuations that
disrupt trade and market integration. Furthermore, it complicates price comparisons, making
the exporters and importers pay extra costs of hedging and diminishes the volume of intra-
regional trade (Reinert, 2020). Thus, MERCOSUR must consider such issues to accept a
common currency or reject it. They will also consider whether the common currency will
increase the depth of trading relations (Krugman, Melitz, & Obstfeld, 2018. Using the
example of the EU, a common current promotes trading relationships among the countries,
which is one factor that should encourage the MERCOSUR members to accept the common
Besides, the countries should consider if the common currency will increase disputes
and friction among the countries because of the increased international trade. There are high
chances that countries will start competing due to trade growth, leading to cross-border
disputes (Basnet, & Pradhan, 2017). These issues must be carefully examined because

interstate conflict can greatly affect international trade relationships. The countries should
also investigate if the common currency led to more synchronization of business among the
countries. Increased synchronization across countries will lead to enhanced business ties
among the members, leading to economic growth.
The common currency is supposed to lead to substantial extra gains for consumers
within the common currency union. Thus, the MERCOSUR countries must evaluate if
adopting the common currency will increase the consumer gains before accepting of rejecting
common currency. Finally, the countries must consider if close economic integration can lead
to political integration. Political stability and integration in the region will promote trade
links. Thus, the member states will accept a common currency to bring political integration
(Basnet, & Pradhan, 2017). One of the factors that will make the countries reject the common
currency is the monetary policy loss. Monetary policy is essential in limiting inflation. Thus,
if the countries realize that the common currency will not limit inflation, they may reject it. A
common currency can lead to a situation where stronger countries bail a weaker one, like
Germany bailed Greece in the EU (Basnet, & Pradhan, 2017).
The endeavor should include only the member states because they are the ones that
enjoy free trade agreements. Making economic decisions among the regional blocks is a
tedious exercise that needs to be considered carefully. Many trade agreements must be signed
among the members while considers various economic and political aspects of each nation
(Reinert, 2020). Thus, including the associate countries will complicate the process, which
will lead to the possible collapse of the meetings among the member states concerning
accepting the common currency. The associate nations should not be included in the common
currency negotiations because a common currency is a serious and permanent commitment.
This is manifested in situations trade is more inside the countries unlike between the
countries. The member countries should only discuss common currency because they are

completely integrated, unlike the associates that are loosely associated with the regional bloc
(Krugman, Melitz, & Obstfeld, 2018). The associate should not take part in the common
currency discussions because they cannot freely trade due to the protection the member
countries of MERCOSUR have created to promote trade relationships. Finally, only the
member states musts are included because they will share the common exchange rate and
monetary policy and the interests and regulation of the quantity of money.


Basnet, H. C., & Pradhan, G. (2017). Regional economic integration in Mercosur: The role of
real and financial sectors. Review of development finance, 7(2), 107-119.
Krugman, P. R., Melitz, M. J., & Obstfeld, M. (2018). International trade: theory and policy.
Reinert, K. A. (2020). An introduction to international economics.