Managerial Economics Assignment: Exchange Rates and Economic Impact

This assignment delves into the realm of managerial economics, specifically examining the financial market dynamics of Russia and the Eurozone. The analysis begins with the impact of the 2014 Ukraine crisis on the Russian financial market, detailing the Central Bank's response of raising the benchmark rate and its subsequent effect on the ruble's value. It further explores the relationship between exchange rates and tourism, using the Euro's devaluation as a case study to illustrate how currency fluctuations can influence economic growth and attract tourists. The assignment also references the impact of fluctuating exchange rates on the tourism industry and its potential to draw visitors from countries with stronger currencies. This assignment provides valuable insights into the interplay of economic policies, currency valuations, and their broader implications on various sectors, offering a clear understanding of the economic factors at play.

Running head: MANAGERIAL ECONOMICS
Managerial Economics
Name of the Student
Name of the University
Author note

1MANAGERIAL ECONOMICS
Table of Contents
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................2
References........................................................................................................................................4

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Answer to Question 1
The crisis of the Ukraine in 2014 affected the financial market of the Russia. The
involvement of the Russia with the Ukraine forced the central bank of the Russia to scale up the
bench mark rate to 9.5% from 8% (En.kremlin.ru, 2020). Thus, the higher bench mark rate of the
country plunged the currency of the country ruble significantly. The currency ruble hit hardest
after the financial crisis of the Russia in 1998. Though, the unexpected increase in the
benchmark rate initially strengthen the value of the ruble.
Later, the dropped to the record low level due to the volatile trade of the country. In
general, when a country increases its benchmark rate, it able to offer higher return to its lenders
compared to other countries. In addition, it also enable the country to attract more foreign
capitals, which in turn ensure the rise in exchange rate (Engel, 2016). In order to boost the
confidence of the investors the government of the Russia took the decision to induce the
benchmark rate of the country. The volatile trade and business scenario hampered the confidence
of the investors and the currency dropped dramatically. Hence, the value of the ruble plummeted
sharply against the euro, currency of Europe. It created huge problem for the Russia as the
exchange rate of the Russia ruble weaken against the Euro. In 2014, after the Ukraine crisis, the
currency was lower by 1.5% to 55.32 against the euro.
Answer to Question 2
The value of a euro remained almost 1.35 US dollars for several years. However, during
the summer of 2014, it plummeted to less than 1.25 US dollars a euro. The weaker euro will
impact the economic growth of the county, although the impact on the tourism industry will be
somewhat different (Europa.eu, 2016). There is a strong relationship between the exchange rate

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and tourism industry. The fluctuations in exchange rate influence the growth of the tourism
industry dramatically. Here, the currency of the euro got weaker, which may help the tourism
sector of the country in a positive way. The weaker exchange rate may attract more people to the
region as the people will find their home currency to be stronger than the euro. In addition, it will
minimize the cost of the trip to the Europe for the tourists from the United States and some other
countries.
Thus, other countries with stronger currencies along with the US dollar in comparison
with the euro will find the place budget friendly and pay a visit to the country (Tang et al., 2016).
Therefore, in one way, it will foster the growth of the tourism industry of the Europe. While
planning for a foreign visit, people will always keep in mind about the currency value of the
home country and destination country. Though, the strong currency acts in favour of the
economic growth, it may hamper the growth of the tourism industry. Hence, the warm fall in the
currency of the Europe will prove great for the tourism business.

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References
En.kremlin.ru (2020). President of Russia. President of Russia. http://en.kremlin.ru/
Engel, C. (2016). Exchange rates, interest rates, and the risk premium. American Economic
Review, 106(2), 436-74.
Europa.eu (2016). Official website of the European Union | European Union. European Union.
https://europa.eu/european-union/index_en
Tang, J., Sriboonchitta, S., Ramos, V., & Wong, W. K. (2016). Modelling dependence between
tourism demand and exchange rate using the copula-based GARCH model. Current
Issues in Tourism, 19(9), 876-894.