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Assess the extent to which movements in exchange rates might influence the holiday choices of UK consumers. - Edexcel - A-Level Business - Question 2 - 2019 - Paper 3
Question 2
Assess the extent to which movements in exchange rates might influence the holiday choices of UK consumers.
Worked Solution & Example Answer:Assess the extent to which movements in exchange rates might influence the holiday choices of UK consumers. - Edexcel - A-Level Business - Question 2 - 2019 - Paper 3
Step 1
Exchange rates are the price of one currency in terms of another
Answer
Movements in exchange rates can significantly impact the holiday choices of UK consumers; for example, if the pound (€) depreciates against the dollar ( $), it increases the effective cost of holidays priced in US dollars. For instance, a holiday to the USA would become more expensive, potentially leading consumers to rethink their plans or opt for holidays in more affordable locations.
Step 2
If the £ depreciates, this increases the effective price of holidays priced in Euros and US dollars
Answer
From 2014 to 2017, the pound's depreciation against the dollar meant that the cost of holidays in dollars increased. Regardless of demand, holidaymakers may be discouraged from booking international vacations due to higher prices, diverting toward domestic options.
Step 3
Trends in UK holidays indicate a decline in overseas trips
Answer
The trend in UK holidays also suggests that as the pound depreciated from 1.8 to 2.1, there was an increase in domestic tourism. This makes sense as many consumers would look for budget-friendly alternatives amid economic uncertainty.
Step 4
Counterarguments: Income and consumer behavior
Answer
However, increased consumer incomes might offset the impact of exchange rate fluctuations. If holidaymakers have more disposable income, they may still choose overseas holidays despite currency depreciation. Additionally, technological advances allowing easier bookings could encourage travel.
Step 5
Conclusion on exchange rates' influence
Answer
In conclusion, while exchange rates do influence holiday choices significantly, factors such as consumer income, technological accessibility, and changing tourism preferences can also play essential roles in shaping consumers’ holiday decisions.