1. Explain how fluctuating exchange rates affect purchasing power. 2. How does a
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Question
1. Explain how fluctuating exchange rates affect purchasing power. 2. How does a strong dollar impact the price of a hotel room in New York for travelers from other countries? 3. Identify and explain the three types of exchange rate risk. 4. How does a strong dollar affect Loews? 5. According to Jonathan Tisch, Chairman of Loews Hotels, the hotel industry in the United States is directly responsible for the creation of 8 million jobs and indirectly responsible for the creation of an additional 7 million jobs. In your opinion, should the U.S. govermment step in if the industry suffers sustained losses as a resuftExplanation / Answer
How fluctuating exchange rates affect purchasing power
The purchasing power measures the value of good which can be bought with specific amount of currency. The fluctuating exchange rates affect purchasing power with respect to the other currencies. Suppose if one country's currency devalues the currency of another country, the goods in the second country will be higher for the first country's currency. This factor need not to be necessarily affect the domestic purchasing power, But the business which rely on the suppliers in the second nation can experience a major price increase for the imported goods. This is due to for contributing for inflation and reduced domestic purchasing power, the business tries to pass their higher cost to the consumer.
How does a strong dollar impact the price of a hotel room in New York for travelers from other countries.
when your currency is strong which means exports hurts , because everything which you are sell is comparatively more expensive. The imports are gets the benefits , because everything you imports is comparatively cheap. From an economic perspective hotel sales to foreign visitors are considered as exports.The US dollar is strong, which means it is good news for US citizens who are planning for vacation for foreign countries & it is bad luck for the foreign traveler who are planning to visit US. The Foreign traveler need spend more money in US, if their currency is weaker than US dollar it is very difficult to afford the room in US hotels.
Identify and explain the three types of exchange rate
There are basically three exchange rates, such as floating exchange rate , fixed exchange rate, and pegged float exchange.
floating exchange rate: It is also called as fluctuating exchange rate, Such exchange rates are not fixed , where the currency value is allowed to fluctuated based on the foreign exchange market. The currency which uses this exchange rate is called as floating currency. EX for floating currency is Dollar. These are the best possible exchange rates because they automatically adjust for economic circumstances. These regimes will make the country to reduce the impacts of shock as well as foreign business cycle and payment crisis will be balanced.
Fixed exchange rate:
It is also called as pegged exchange rate system. Where the Government tries to maintain the currency value constant against other country currency or goods. In this system the Government decides the value of currency based on either another currency, fixed weight of an asset or basket of other currencies. The Central bank of the country is committed to buy or sell it's currency at fixed price. The best an famous Fixed rate system is gold standards, where the unit of currency is pegged in to the particular amount of gold. The Government also peg to other currencies. These nations an choose a single currency to peg or also a basket of currencies of the nations main trading partners.
Pegged Float Exchange Rate:
These are pegged to some value or band , They can be either fixed or periodically adjusted. They are a floating and hybrid of Floating regimes.
How does a strong dollar affects Loews?
The Dollar has gained more than 5% against Euro over the past few months. it is making more expensive for the international traveler to visit the United states. On the top of this Trump's policies - which includes travel ban, public spats with the governments Germany, Australia, China, Mexico- blocking the international travelers to visit United states. The expenses of Loews is going up, Labor cost, marketing cost,taxes, distribution cost are raising- so the hotel has a pressure to maintain these expenses. International travelers stay more time and spend more money, due to strong dollar the expense for groceries, food , travel, room etc are going up- This situation is blocking them to visit US. The strong dollar has huge negative impact on Loews.
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