21. Exchange Rate Fluctuation Effect on Macau Gambling
Added on - Sep 2019
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1Exchange Rate Fluctuation Effect on Macau Gambling BusinessParticularsPage No.Abstract2Introduction3-4Literature View4-11Research Methodology12-15Data Analysis and Finding (Questionnaire)15-31Data Analysis and Finding (Observational)31-39Conclusion39Recommendation39-40Research Limitation40References41-45AbstractMoney is one of the most important thing in everyone’s life. It is necessary to have money forsurvival in today’s date. Each and everyone likes to earn more and more money to make life
2better. Some people are there who like to earn steady income while some other are there wholike to take risk and try their luck to earn money quickly. The one who likes to earn steady goeswith safer investment avenues such as bank deposits, government bond, post office depositsetc. On the other hand those who likes to take risk for quick income goes with equity market,commodity market and gambling.Gambling is one the investment game (that can/can’t be considered legal depends on region)where you put money on certain events or numbers that can or can’t come in favour of you. If itcomes in favour, you earn money and if it goes against your prediction, you lose money. Peoplewould like to try their luck with an anticipation to earn quick money. Los Angeles, Macau,Bahamas, Paris, London etc. are some of the region where these are legal and played bythousands of people putting million-billion dollar on various gambling game.[Singh, A.K.et.al2017]As this form of business is not legalized everywhere in the world thus people who would like toearn quick money through such investment games visit these places to try their luck. Wheneverthere is cross border investment, we witness exchange rate issues.Currency rate fluctuation is one of the biggest problem in the world. We witness the ups anddowns in dollar and euro with other currencies. Gambling business is not separate from it as italso involves investment made by various visitors across the world which comes underexchange rate fluctuation. This also impacts the revenue generation of gambling businessowner.Here in this report, we are considering this currency rate fluctuation impact on Macau gamblingbusiness. In this report, we will see the gambling business scenario in Macau and also willassess the impact of various currencies exchanged with local currency that changes the revenueor earning of business owners.Introduction
3Macau is known as “Gambling Capital of the world”. There is valid reason behind this sayingbecause Macau receives around 50% of total revenue [Burnside, C et.al2001] from gamblingbusiness only. It surpassed another gambling world Los Angeles’s Las Vegas revenue in 2017 tobecome the highest gambling investment and revenue generation region in the world. It is not arecent case as the business has been legal since 1850s. [Enders, W. (2008)] Majorly it is theMainland China and Hong Kong region people who come here to play gambling games in orderto earn in millions. Since the government ended gambling monopoly in 2001, [Song,H.,et.al2006]the business took a greater pace and many more players came into thus businessand also changed the gambling business shape from traditional Chinese gambling games to 20thcentury gambling games which are played in western regions. Since then even visitors fromUSA, Australia, UK, Germany, Japan etc. have been coming large in numbers. [Krugman, P. R.(2008).]Basically Macau gambling business is basically divided into 4 types which are casino games,greyhound racing, sports betting and lotteries. [De Vita, G. (2014)] The reason behind strongsupport of Macau government for gambling is that near about 50% of total government directtax revenue comes from this source. According to an independent website, Macau is havingaround $28.04 billion USD revenue from this sector. [Aghion, Pet.al2009] This is almost 45% oftotal revenue generated from gambling business across world. Game of fortune, poker andbaccarat are the three games which are played mostly by people. There are 38 casino centres inMacau and the largest one in terms of revenue is Texas Holdem Poker.Macau gambling business is even through works independently but it is controlled andmonitored by government. It includes constitutional law, administrative law, tax law, companyla, contract law and criminal law. Currently Macau government is charging 35% tax on gamblingrevenue plus 2-3% cess for socio-economic development. [Brooks, R. (2015)]In recent years, Macau has witnessed downfall in revenue growth of gambling. There can bemany reasons behind downfall but what significantly came out to be affecting revenue wascurrency exchange rate. According to an independent survey, it was found that around 80-85%of betting are done [Sheng, M., et.al2018] with USD, Pound, Yen, Yuan, HKD, AUD, Euro etc. As
4these currencies value fluctuates with the time period and international economic moment,this affects the revenue of gambling business in Macau as the value of Macanese Pataca(Currency of Macau) is still lower to other major currencies. When dollar gets stringer or Eurogets better, it affects the business owners to pay more to compensate the investment. .[Servén, L. (2003).]In this report, we are going to see that effect on gambling business in Macau.Literature ReviewLiterature review is an important part of this study as this will clear the idea behind theproblem under study. These LR are acting as secondary source of information for this researchstudy which will help to open up key areas that are required to be touched to make this studyvalid. We are going with various secondary sources such as research reports, journals, newsarticles, websites, statistical reports, government reports etc.Myongjee Yoo [et.al.2010] in their research report “The impact of currency exchange rate onLas Vegas gaming demand” talked about currency rate fluctuation impact on Las Vegasgambling business. The study took null hypothesis that currency fluctuation would affectgaming demand while they included expenditure, visits and days as supportive null hypothesis.The study carried with secondary data for study. The study provided the fact that there is noclear cut effect is there of exchange rate with gaming business as exchange rate is havinginterrelationship with inflation rate. It is primarily the income of consumer and price level thatis affecting the business more particularly. The report also brought the fact that people arevisiting less to the region if currency exchange rate increases thus less investment is takingplace in gambling.Niall Fraser (2016) in his news article “Beijing takes aim at Macau gaming industry to cutcurrency flight” talked about the strategy of China to balance currency exchange effect ongaming industry in Macau. The news report said that Macau slashed withdrawal limit fromUnionPay Bank card holders from ATM machines from 10000 patacas to 5000 patacas. The stepwas taken because an outflow of over 10 billion patacas withdrawn by people in one month in
5China. As some of the casino owners allows UnionPay Bank cards to buy gaming chips, billionsof Yuan is flowing out of mainland China. Thus Chinese government decided to check on moneyflow from China to Macau gaming industry which caused reduction in revenue.Kim [et.al2018] in their research article talked about the macro economic factors that areaffecting the gambling business in South Korean region. The study considered monthly datafrom 2006 to 2016 which they put in Structural Vector Auto Regression (SAVR) model tomeasure the dynamic effect of the factors on the number of casino visitors. Their researchstudy brought us the fact that people from Japan and Mainland China are almost ¾ of the entirevisitors to Korea were affected by the macroeconomic factors. The factors that were identifiedthe most significant were changes in oil price, exports and exchange rates and interest ratechanges. The study provided the fact that rise in exchange rate (implies real appreciation ofcurrency) has no significant impact but interest rate identified to be immediately impacting thecasino visitors. This research study identified that a rise in interest or exchange rate is reducingthe number of visitors and investments in casinos across Korean region. Particularly in MainlandChina, the exchange rate produces an impulsive response among the casino players. The reportalso provided that the number of times, the exchange rate fluctuation takes place, the morenumber of time casino visitors are showing variance in their visit and investment. The reportprovided the reason behind exchange rate fluctuation effect on gambling business is that of anation people have the ability to travel overseas due to their higher currency value, in the eventof fall home currency against the hosting land, they will move to other nation while in vice-versa case, they would come to invest more.The report provided significant ideas regarding the circumstances where exchange rate playsthe role to affect gambling business.Frank Flanegin [et.al 2010] in their research report on US gaming market introduced the keymacro-economic factors that have significant impact on this business. The report started withthe hypothesis that Las Vegas gaming business is more or less recession proof. But the reportprovided the fact that like other business, casino business too gets affected with the change ineconomic condition. The report not only brought the effect of exchange rate but also
6mentioned about the other macro-economic factors such as GDP, unemployment and stockmarket returns have also significant impact on casino revenues. The study provided that GDPhas positive relationship on casino revenue while unemployment has negative relationship incasino revenue. The report also identified the effect on inflation has also positive relationshipwith revenue. Stock returns is identified as significant negative effect on casino revenue.The report provided the fact that each macro-economic factors have some impact on gamblingbusiness. Although, the report didn’t mention about the impact of exchange rate but we cameto know about the related factors such as GDP, inflation rate and unemployment which hasmore or less relationship with exchange rate and interest rate which can impact the gamblingbusiness in Macau as well.Paap [et.al2011] in their research report talked about the business cycle influence onexpenditures of the three major legalized gambling business which are lottery, casino gamblingand pari-mutuel wagering. The study covered the period from 1959 to 2010. The empiricalstudy provided the fact that it is the lottery business that is identified as recession proof. Thisbusiness is also characterized as higher growth in whole gambling business sector. Casinobusiness growth is identified in phase of expansion while no growth is found in recessionperiod. Incomes shocks is having no influence on gambling expenditure of casino in relation tobusiness cycle. Pari-mutuel wagering identified as having negative trend. Their research studyprovided the result that people are opting government lottery during recession period majorlydue to lower price level. Apart from that in comparison to other gambling games, lottery isidentified as the cheapest game thus people are more or less consuming steadily (buying lotterytickets). The report also mentioned that consumer demand for lottery products respondspositively to the expected value of gambling. People are finding winning huge amountprobability is more attractive than the fact of unemployment rate is lower or traditionaleconomic opportunity looks better. The researcher in their research disclosed the point thatwhen the casino business reaches its saturation point (Las Vegas Gambling business) slowerincrease is reflected even if the economic condition is favorable. The report also provided usinformation about coupling business has better growth prospects than to simple gambling
7place. The researchers identified that a gambling house with restaurants, accommodation andbar facility having higher growth and is not affected by inflation or any other economic cycle.This report helped us to understand the economic cycle impact on gambling businessexpansion. We came to know that when the economic condition is favorable, the businesshouses are expanding. This can be utilized for exchange rate case as it is a part of economiccycle.Walker (N.A.) in his web article provided the exchange rate implication in gambling businesswhere he took the example of online poker game (a type of gambling game). The article saidthat such platform where only one currency goes such as USD, the player needs to exchangetheir money in USD to play games. The exchange rate in gambling is applied similar to normalcurrency exchange regulation however this would cost more due to taxation in gamblingbusiness. The author said that if the person is keeping the money in the wallet of the pokergame then such money would face high level of currency fluctuation if it is kept for a substantialperiod of time. It can be positive or negative for the non-US poker player depending on thecurrency movement.The author pointed out the effect on gambler in the following manner-Higher effect of currency exchange negatively if the USD gets stronger to player’s localcurrency and there on number of visits and investment in gambling will come down foroutside US people.If the person keeps the money for longer period of time, it will be subject to exchange ratefluctuation more than those who keeps for shorter period of time.If the person keeps smaller amount of money as deposit with business house then it willaffect less on their gambling habit.Players tend to wait for the exchange favorability to avoid cash out curse.The author finally commented the fact that for local casino players the exchange rate effect isnot an issue for the outsiders it is a significant issue. This study helped us to understand the factthat Macau gambling business where majority of players are outside the region will certainlyface this issue which will be studied here.
8Newsdesk (2017) in their news article on low risk factor of Macau on Mainland China’s anti-corruption matters and further tightening monetary policy. The news article mentioned the factthat although Macau thinks it at low risk but any changes in monetary policy such as anti-corruption or capital outflow, it will have significant impact on gambling business. If theMainland China brings tighter monetary policy then, it would impact spending of gamblers ofMainland China who accounts 65% of total gambling business in Macau.Regarding the Macau gambling business exchange rate effect, the article provided the fact thatmajority of gambling is done in Hong Kong Dollar which is getting stronger position againstinternational currency USD. Many Macau gamblers have their assets denominated in ChineseCurrency Yuan. Therefore if Yuan depreciates, it attracts more usage of HKD which is a moreexpensive proposition. This is also helping the local currency Pataca to get better positionagainst USD.Talking about the non-casino gambling then most of that is done with local currency. Thus sucha monetary policy change (US monetary policy to liberalize anti-graft measures and visa polices)takes place in near future then it will increase the cost of credit and a real effective appreciationof local currency will take place against that of Mainland China.In this report, we basically came to know about how the monetary policy of a nation can impactthe exchange rate which has the impact on gambling business as well especially when thecountry is having high dependence on gambling business such as Macau.Duprey (2018) in his article mentioned about some of the key factors that impacted revenue ofMacau gambling business. The article provided the fact that recent growth has taken place dueto higher investments of VIP players in Macau gambling business. Although the Chinesegovernment has taken measures like limiting the amount of money withdrawn from ATM inMacau, fingerprinting all foreigners in the country and banning smoking at gaming table inorder to reduce the capital outflow from Mainland China to Macau but the program didn’t havemuch impact on investment. It is majorly because of the pegging reason of Pataca to HKD whichin turns pegged to USD providing stability to foreign gamblers to invest in Macau gamblingcentres.