Activity 1

Explain how changing currency exchange rates might have an impact on the following businesses:

1. A small hotel in a UK seaside resort.
2. A UK based tour operator taking small groups of tourists to Europe.
3. A large attraction. Writing frame

When buying foreign money to spend abroad, tourists need to have some idea of what they are spending and how much things are costing. So, calculating how much a foreign currency is worth is important.

Let’s assume that at a moment in time £1 has an exchange rate of $1.35 and 1.12 Euros.

To change British money into foreign money the following formula is used:

Foreign currency = British currency x Exchange rate

So, given the exchange rates above:

For £100 a tourist would receive

$135 (£100 x 1.35) and 112 Euros (£100 x 1.12)

Let’s say that a year beforehand the exchange rates had been $1.47 and 1.29 Euros. If this were the case, the UK tourist would be worse off changing money than they had been a year ago and items bought when abroad would be more expensive.