Fig. 1 shows an index of the value of the zed against a basket of foreign currencies. A hotel chain imports furniture but receives income from overseas tour...
Question 1 Report
Fig. 1 shows an index of the value of the zed against a basket of foreign currencies. A hotel chain imports furniture but receives income from overseas tourists.
(a) State the percentage decrease in the exchange-rate index from 2021 to 2023. [2]
(b) Explain one likely effect on the hotel's income from overseas tourists, measured in zeds. [2]
Answer Details
(a) The index falls from 120 in 2021 to 100 in 2023.
Decrease: \(120-100=20\). [1]
Percentage decrease: \(\frac{20}{120}\times100=16.7\%\), so an answer of 16.7% decrease or 17% decrease is accepted. [1]
(b) The falling index means that the zed has depreciated. Overseas tourists need less foreign currency to obtain zeds, so a hotel stay in the country becomes cheaper for them. This may attract more overseas tourists, causing the hotel's income measured in zeds to increase. [2]
Do not confuse this with the effect on imported furniture: depreciation makes imports more expensive in zeds, but the question asks about income from overseas tourists.
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