South-Western College Publishing - Economics  
Dollar Falls, Travelers Feel the Pain
Topic International Finance
Key Words Currency Markets and Value of the Dollar
Full Article

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Reference ID: A166557273

News Story An American, Michael Kingsley arrived at his destination in Germany only to discover that he had left his camera battery and charger in a London hotel. The dollar value to replace them in Germany was $143 compared to about $100 if he could have purchased them back in his home town of Falls Church, Virginia.

This is the experience of travelers all across Europe as the U. S. dollar continues its decline against the euro. The good news for Europe is that the travel statistics indicate that American visits to Europe have increased this year despite the erosion of the dollar. Travel experts explain the growth as an indication of the growing affluence of American tourists and the perennial appeal of Europe as a travel destination.

“Americans who visit Europe tend to be more educated, with higher incomes, so they are less affected by the exchange rate,” said Joachim Scholz, a researcher at the German National Tourist Board. “Even backpackers have more money than they used to, if you look at the price of hostels.”

The other side of this coin it the increased travel boom to the United States by European travelers. When the dollar falls against the euro it makes European prices higher to Americans but makes U.S. prices lower to Europeans. Lower prices translate into travel bargains for Europeans traveling to the U.S.

In the last 12 months the dollar has declined 8.9 percent against the euro with the most striking fall over the last few weeks after many Americans had already booked their European vacation. The sticker shock comes once they get to their destination and realize just what the dollars decline means to them in real terms.

“I have to be much more aware of looking at the price of everything,” said Erin Rogers, 21, still marveling at a $22 plate of Irish stew she ordered the previous evening. “I didn’t have a clear compass of just how weak the dollar was. It was a crash course in global economics.”

The exchange rate squeeze may be toughest on Americans who live in Europe but are paid in dollars. They are getting paid just like they are home but are purchasing commodities and services just like they were travelers. Some companies compensate for the difference, but many do not.

“It’s scary,” said Jennifer Aquino, who lives in Madrid and works for Bentley College in Waltham, Massachusetts. “It makes you think twice about if you want to keep building a life in Europe.”

Questions
Discussion Questions:
1. Discuss how changing exchange rates affect prices in the trading countries.
2. Visit http://www.xe.com/ucc and convert dollars to euros at the current exchange rate. Do you think this would be a good time to visit Europe?
Multiple Choice/True False Questions:
1. As the dollar falls against the euro, prices for American travelers in Germany fall.
  1. True
  2. False
2. Using Mr. Kingsley’s example, for every euro he bought he had to pay about $1.43.
  1. True
  2. False
Source Mark Lander, “As Dollar Crumbles, Tourists Overseas Reel,” The New York Times Online, July 19, 2007.
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