Assess the extent to which movements in exchange rates might influence the holiday choices of UK consumers [12]
ANSWER TO EXAM QUESTION - Edexcel A Level Business Studies 2021
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Assess the extent to which movements in exchange rates might influence the
holiday choices of UK consumers [12]
An exchange rate is the value of one currency in the form of another. Fluctuating exchange
rates can have positive and negative impacts on those eager individuals who want to go on a
holiday. When exchange rates are uncertain, it makes it extremely difficult for consumers to
budget. For example, if the pound depreciates (becomes weaker), inflation rates are likely to
rise and therefore it makes it more expensive for consumers to go on a holiday. However,
with an increase in bookings for ‘all-inclusive holidays’, this shows that consumers are able
to look in advance so that they are not badly impacted by the ever-changing exchange rates.
This enables consumers to book ‘all in 1’ holidays where they are likely to get great value for
money. The value of the pound changes from day-to-day and this causes uncertainty for
consumers when booking a holiday. Floating exchange rates can decrease the demand for
holidays, as less people would be willing to take the risk of potentially having to spend
more. The movement in exchange rates does influence the holiday choices of UK
consumers, as changes in price strongly impacts the decision on whether or not a consumer
agrees to go to a certain destination.
Other factors that might influence the holiday choices of UK consumers is the cheaper price
of substitute holidays such as staycations. As a result of changing exchange rates, consumers
may not want to go abroad and may instead go on a holiday within the country. Having
these ‘short-term experiences’ means that consumers don’t have to deal with the changes
in value of the pound and more consumers are switching to this. Unemployment is another
factor that influences the holiday choices of UK consumers. As unemployment decreases,
there is an increase in the demand for holidays. This is because more people would be able
to afford it. The income elasticity of demand (YED) for holidays has increased for UK tourists
and this means that as incomes rise, more people can wish to go on a holiday. However, if
YED is negative, then the demand for holidays decreases, so income is a deciding factor for
people when deciding to go on a holiday. Over time, consumer tastes are also likely to
change and this impacts people in terms of what holiday they decide to go on. For example
when exchange rates are fluctuating and incomes are low, people may decide to go on a
more affordable holiday such as a staycation.
Overall, there are many factors that influence the holiday choices of UK consumers. Moving
exchange rates have a big impact on people – it can cause confusion and chaos around
budgets. However, there are many other factors such as incomes, consumer tastes and
other substitute holidays such as staycations that also influence the choices of UK
consumers. In terms of the biggest influence, this depends on the individual and their own
situation. For example, one individual may not be impacted much by the changing exchange
rates, whereas another individual may be more reluctant to take the risk where they may
end up going over their forecasted budget.
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