Question

explain why investing in a highly differentiated high-end hotel in Switzerland--where some significant part of the target customers are non-Swiss tourists--could be a particularly high-risk entrepreneurial investment in light of exchange rates

Answer 1

The investment in a highly differentiated high-end hotel in Switzerland is high risk because, profitable functioning of the hotel is dependent on non-Swiss tourists, who are themselves guided by exchange rate changes while taking a decision on whether to travel to Switzerland.

For example, if the Swiss Franc appreciates vis-à-vis US Dollar then non-Swiss tourists from the US are less likely to come to Switzerland as travelling in the country will be more expensive. In such a situation, the profitability of the hotel will get adversely affected. Same is the case of Swiss Franc vis-à-vis currency of other countries. So, the profitable functioning of the hotel is vulnerable to the vagaries of exchange rate fluctuations, something on which the owners of the hotel have no control.