Whenever we go on holiday one of the most important things we make sure to pack is enough of the local currency. As travellers and holidaymakers this is to ensure we have plenty of money to help us get by purchasing food, drink and other amenities.
What many of us don’t consider is the impact this currency exchange has on the economies for both nations. It may only make a small ripple in the gigantic ocean that is the world’s forex market but buying Euros, Dollars or Yen with British pounds or vice-versa is the most basic currency exchange and one which has an important relationship with global tourism.
Economies Reliant on Tourism
The order of the top countries reliant on tourism may change on an annual basis but the majority always include luxurious islands in the Caribbean and West Indies. Many are nations with small populations and high GDP per capita, with places like the British Virgin Islands relying on tourism for 45% of its income.
These countries require high levels of tourism for money to be invested in their local businesses and keep them running. At the most popular times of year visitors will purchase currency, strengthening the nation’s economy (although some use the US Dollar and rely on its strong performance).
Appreciation and Depreciation Effects
When your home country’s currency is in a strong position it can make it more tempting for travellers to visit more exotic places or those with a relatively weaker currency. When the Euro was falling for example it made visiting places like Spain and France more affordable for US holidaymakers than ever before.
It works in the opposite direction though, as fewer Europeans would be likely to visit the USA with a poor exchange rate, lowering their tourist numbers. Forex traders capitalise on such situations, and opening an account with FxPro provides a good opportunity to profit.
There are a lot of factors which can put off tourists from visiting certain countries, such as political unrest and increased danger. Changes in the forex market can have a big impact too though, as if the exchange rate becomes too close and therefore more expensive, many potential visitors may decide to holiday elsewhere.
Countries heavily reliant on tourism can be greatly affected, especially Caribbean islands which use the US Dollar. If it strengthens against the Euro due to global factors (such as the Greek bail out) then many of the potential tourists may choose to stay at home, resulting in a drop in these tourism-reliant nation’s national income. Global currency and tourism rely on each other.