With the introduction of the euro, borrowing costs for Indian corporates will come down significantly as interest rates in the euro zone have been recently pared, a top dealer with a leading foreign bank said on Friday.

Further the transaction costs on the foreign exchange (forex) markets will decline in direct proportion to the volume of business handled, he said.

"Financial markets will have major implications as far as their treasury operations are concerned in managing the transition in terms of operational and technology considerations," Sunil Sharma, chief dealer, ANZ Grindlays Bank said.

"Furthermore, with the ``no prohibition-no compulsion'' scenario for the first three years, we could see more complexities in the markets as the 11 currencies in the transition period actuallybecome 12 before merging into one," he said.

"ANZ has already undertaken extensive education and training programmes for its customers and staff to ensure a smooth switching to the euro," he said.

"The immediate impact of euro would be for dealers in treasuries and they have now started to think about diversification because exchange markets in the 11 legacy currencies will no longer exist," Anand Anchan, general manager (treasury), Global Trust Bank, said.

"For currency traders it is indeed a big jolt as they will now have to trade in a single currency in place of 11, reducing arbitrage opportunities thus making a dent on their bottomline," he said.

"However, there is another school of thought which believes that to begin with euro quotes would be volatile and in the absence of liquidity and market participation arbitrage opportunities will open up automatically," he said.

On the positive side, Anchan said, the euro being a combination of 11 currencies will exhibit relative stability and life oftreasurers will become slightly easier.

Interest rates will be stable and one need not get into complicated derivatives to hedge the exposure, he said, adding banks would now need to maintain only one euro account for the entire euroland and fund management and reconciliation would become easy to that extent.

The Reserve Bank of India (RBI) in its 1997-98 annual report has warned that Indian corporates should be ready to pay or invoice in euro as they may encounter customers and suppliers in the EU who are willing to deal only in the euro.