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attempt to isolate and measure those parts of the
time series that are attributable to each of these.
The univariate ARIMA forecasting method is a
highly sophisticated technique and is rather more
difficult to apply than the other univariate timeseries
methods considered. The autoregressive
component implies that tourism demand depends
on its own past values, and the moving average
component implies that tourism demand depends
on previous values of the error term. ARIMA
models are very flexible, and can represent many
types of stationary and non-stationary series.
Furthermore, they often provide relatively accurate
forecasts.
Selection of an appropriate technique for
forecasting international tourism demand depends
upon the requirements of the forecaster.
Empirical research has shown that no single
forecasting method performs consistently best
across different tourism demand situations, and
that more complex techniques do not necessarily
generate more accurate forecasts than simple
methods.
Further reading
Frechtling, D.C. �1996) Practical Tourism Forecasting,
Oxford: Butterworth-Heinemann. �Provides an
introduction to various methods available for
forecasting tourism demand.)
Song, H. and Witt, S.F. �2000) Tourism Demand
Modelling and Forecasting:Modern Econometric Approaches,
Oxford: Elsevier. �Provides an introduction
to modern sophisticated econometric
forecasting methods with tourism examples.)
Witt, S.F. and Witt, C.A. �1992) Modeling and
Forecasting Demand in Tourism, London and San
Diego: Academic Press. �Examines the accuracy
of various quantitative forecasting methods in
the context of international tourism demand.)
ÐÐ �1995) `Forecasting tourism demand: A review
of empirical research', International Journal of
Forecasting 11�3): 447±75. �Reviews the main
methods used to forecast tourism demand which
are reported in published empirical studies,
together with the empirical findings.)
STEPHEN F. WITT, UK and AUSTRALIA
foreign exchange
foreign exchange 235
Foreign exchange is the exchange of one country's
currency for that of another country. The exchange
rate between two currencies is the price of a unit of
the one currency in terms of the other currency at
which the exchange takes place �for example, 10
French francs to the British pound, 1.8 deutschmarks
to the US dollar and so on). The spot
exchange rate is the rate for immediate delivery.
There are also forward exchange rates for the more
commonly used currencies, which may be used for
hedging. Exchange rates may be either fixed or
floating �variable). A currency union is a group of
countries which have agreed to fix �or peg) the
exchange rates among their currencies, perhaps
with a narrow band of permitted variation. Many
currencies are fully convertible into other ones in
the foreign exchange markets, but some are not.
Exchange controls are a form of currency
control which restrict the transferability of a
national currency into or out of the country
concerned. Because exchange rate variations affect
the relative prices of goods and services in different
countries, they are an important factor in international
trade, including international tourism,
as well as the sudden popularity of certain
destinations at the expense of others when their
currencies fluctuate substantially.
By convention, exchange rates are normally
given as a number greater than one �for example,
US dollars 2.50 to the British pound, rather than
0.4 UK pounds sterling to the US dollar). The
forward market is used for hedging. For example, a
UK tour operator will need to pay a large sum in
Austrian schillings in three months' time for a
number of rooms in Austrian hotels booked as part
of holiday packages sold to UK customers. The
exchange rate between the UK pound and the
Austrian schilling is liable to vary during the three
months, and the tour operator may wish to avoid
the risk of an adverse movement in the exchange
rate �a fall of the pound against the schilling) which
would increase the amount of pounds needed to
pay for the rooms. The tour operator could enter
into a forward exchange contact to buy the
schillings in three months' time, at the current
three-month forward exchange rate. By hedging in
this way, the tour operator would avoid the risk of a