Question

An executive from Switzerland checked into a hotel room in Spain and was told by the hotel manager that 1 EUR will buy 1.2983 CHF. From the executive's perspective, an indirect exchange rate quote would be:

a. 0.7702 EUR per CHF.
b. 0.7702 CHF per EUR.
c. 1.2983 EUR per CHF.
d. 1.2983 CHF per EUR.

Answer 1

The correct indirect exchange rate quote for the Swiss executive would be 0.7702 EUR per CHF. Exchange rate fluctuations impact international business profits and the purchasing power of tourists. The answer is a. 0.7702 EUR per CHF.

Step-by-step explanation:

The indirect exchange rate quote from the perspective of an executive from Switzerland checking into a hotel room in Spain, where 1 EUR buys 1.2983 CHF, would be calculated by taking the reciprocal of the direct quote. Therefore, the indirect quote would be 1 divided by 1.2983, which equals approximately 0.7702. This means that one Swiss Franc (CHF) buys about 0.7702 Euros (EUR), so the correct answer is a. 0.7702 EUR per CHF.

Understanding exchange rates is crucial for firms engaged in international trade, as fluctuations can have a significant impact on profits. For example, a French firm selling in the U.S. with costs in euros and revenue in dollars could suffer losses if the euro strengthens against the dollar. Similarly, for tourists, like a Dutch tourist converting euros to Chilean pesos, a stronger euro would mean more pesos per euro, leading to a cheaper vacation.