Question

Between 2008 and 2015, the Swiss Franc appreciated against the euro from about CHF 1.60 to CHF 1.10
i) Explain possible impact of this change on Swiss imports, exports, external competitiveness and the Swiss trade balance.
ii) What effects might these changes have on the Swiss tourism sector, and on cross-border shopping in Switzerland?
iii) Explain the possible impact of this change on Eurozone exports to Switzerland

Answer 1

Ans (i) Appreciation of a currency means that it requires less number of domestic currency in order to purchase one unit of foreign currency.

It is given that the value of Swiss Franc has appreciated from 1.60 to 1.10 against the euro which means that now the people living in Switzerland have to spend less money to buy one unit of euro currency.

The possible effect of this appreciation is that the imports in the Switzerland increases as these people find the goods manufactured in EuroZone more cheap.

But the opposite effect occurs in the exports of Switzerland as the people in the eurozone find the swiss goods costly because now they have to spend more number of Euro for each Swiss Franc currency unit. In this case, the exports decrease.

As far as external competitiveness is concerned, the Swiss goods become less competitive in the market after the appreciation of currency against the euro.

The trade balance of Switzerland declines as the imports are greater than Exports, which leads to the situation of current deficit in the economy.

Ans (ii) Swiss tourism sector also face a declining trend as the tourist coming from the other country,especially Euro Zone have to spend more money in order to buy one unit of Swiss Franc.

The cross border shopping in this Switzerland increases as the Swiss people find the European goods cheaper and start increasing them more which leads to the increase in the overall imports of European goods in the Switzerland.

Ans (iii) As we have discussed in the previous part that the imports from the eurozone increase, this in other words means that the exports of goods from the eurozone to the Switzerland increase.