The Effect of the European Monetary Union on International Capital Markets

This thesis analyzed the influence of the Economic and Monetary Union (EMU) which is predicted to appear publicly on January 1999 over the international financial environment, aiming at discussing the countermeasure that Korea should take to this external environment. The inexistence of exchange risk in Europe which brought by the appearance of the single currency accelerated the flow of capital within this area, and it is predicted that the financial institutions in this area will be rearranged. It is predicted that the appearance of Euro will contribute to the development of the company bond market greatly. It is estimated that the company bond of "high-risk, high-return" including the junk bond which is unsuitable for investment will be activated, but the sound financial policy which was taken to stabilizing the Euro will greatly shrink the national debt market. At present, US dollar plays a dominant role in aspects of foreign exchange trade, international settlement, asset investment, governmental reserve assets, etc., but it is predicted that the international currency system will be polarized with the appearance of Euro. In the year 1999 in which EMU established, it is predicted that Euro will keep its stability by cooperating with the US policy, and it won't greatly affect the private and governmental assets of other countries including Asian countries. However, the appearance of Euro might weaken the function of Yen which is another main currency further, so there is analysis that Japan will positively promote the internationalization of Yen.