Directions: Answer both questions. They are worth 25 points each. Length per question: around 1.5 to 2.5 page double--spaced would be fine. Longer answers are acceptable as long as the extra length is used to make valid and important points in answering the questions.

1. Assume that you run a travel agency known as 4D Travel (Dalal's Deliciously Delirious Departures) that specializes in travel packages to Europe. The 4D team works with hotels in Europe, and based on the price of a room in euros you come up with a price in dinars to charge your clients; the same would go for local transportation, meals etc. You book these trips an average of three months in advance and you and your clients agree on a price in dinars at the time of the booking. 4D, of course, will then have to pay the bills when the services are rendered in three months.Your doors opened in 2008 and you have watched exchange rates between the dinar and the euro bounce around constantly. Over the years you have been in business you have had to deal with a strong euro (exchange rate of BD0.5902 per euro in 2008) and a weak euro (BD0.3707 per euro in the current market). This means, for example, that a hotel room that cost 200 euros per night would cost BD118.040 in 2008 but only BD74.140 today. Just for your information, I have pasted below the record of the $/ exchange rate, showing that it moves around a lot. Explain, based on the four determinants/fundamentals of floating exchange rates, what in general may have caused these swings in the dollar/euro exchange rate(thus swings in the dinar/euro exchange rate). Then comment on what these swings in exchange rates would do to your business if you locked in a price for your clients months in advance and the exchange rate changed over those months. For example, what you if locked in a price in dinars for the trip and then the euro got much stronger? What if you lock in and the euro gets much weaker? Use hypothetical numerical examples as I do above to make your point and explain how this movement could hurt or help your travel agency's financial health.

2. The practical core of macroeconomics makes clear what factors drive an economy in the long run. In this essay I would like you to do the following. First, make a list of the factors that are the source of economic growth in the long run. And then, for each of these factors, tell me as a citizen of Bahrain or Turkey, etc.how well you think your country meets each of these standards. Lastly, if you think that your country could do better with regard to something, recommend a policy that would improve that factor, thus raising the long-run potential of the economy.