Exchange Rate & Macau Gambling

This report investigates the impact of exchange rate fluctuations on Macau's gambling industry. It uses a mixed-methods approach, combining questionnaire surveys of business owners, overseas customers, economists, and government representatives with an observational study of five gambling establishments over three months. The findings reveal that exchange rate volatility, particularly the fluctuation of the Chinese Yuan against the Macanese Pataca, significantly impacts the number of overseas visitors, weekly revenue, and deposits held by gambling houses. The report concludes that Macau's gambling industry is highly dependent on overseas customers and that exchange rate fluctuations represent a significant concern. Recommendations include exploring currency hedging strategies, reducing taxation on gambling revenue, legalizing online gambling, and developing integrated service models to mitigate the negative effects of exchange rate volatility.

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Exchange Rate Fluctuation Effect on Macau Gambling Business
Particulars Page No.
Abstract 2
Introduction 3-4
Literature View 4-11
Research Methodology 12-15
Data Analysis and Finding (Questionnaire) 15-31
Data Analysis and Finding (Observational) 31-39
Conclusion 39
Recommendation 39-40
Research Limitation 40
References 41-45

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Abstract
Money is one of the most important thing in everyone’s life. It is necessary to have money for
survival in today’s date. Each and everyone likes to earn more and more money to make life
better. Some people are there who like to earn steady income while some other are there who
like to take risk and try their luck to earn money quickly. The one who likes to earn steady goes
with safer investment avenues such as bank deposits, government bond, post office deposits
etc. 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 it
comes in favour, you earn money and if it goes against your prediction, you lose money. People
would 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 by
thousands 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 to
earn quick money through such investment games visit these places to try their luck. Whenever
there 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 and
downs in dollar and euro with other currencies. Gambling business is not separate from it as it
also involves investment made by various visitors across the world which comes under
exchange rate fluctuation. This also impacts the revenue generation of gambling business
owner.
Here in this report, we are considering this currency rate fluctuation impact on Macau gambling
business. In this report, we will see the gambling business scenario in Macau and also will
assess the impact of various currencies exchanged with local currency that changes the revenue
or earning of business owners.

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Introduction
Macau is known as “Gambling Capital of the world”. There is valid reason behind this saying
because Macau receives around 50% of total revenue [Burnside, C et.al2001] from gambling
business only. It surpassed another gambling world Los Angeles’s Las Vegas revenue in 2017 to
become the highest gambling investment and revenue generation region in the world. It is not a
recent case as the business has been legal since 1850s. [Enders, W. (2008)] Majorly it is the
Mainland China and Hong Kong region people who come here to play gambling games in order
to 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 business
and also changed the gambling business shape from traditional Chinese gambling games to 20th
century gambling games which are played in western regions. Since then even visitors from
USA, 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 strong
support of Macau government for gambling is that near about 50% of total government direct
tax revenue comes from this source. According to an independent website, Macau is having
around $28.04 billion USD revenue from this sector. [Aghion, Pet.al2009] This is almost 45% of
total revenue generated from gambling business across world. Game of fortune, poker and
baccarat are the three games which are played mostly by people. There are 38 casino centres in
Macau and the largest one in terms of revenue is Texas Holdem Poker.
Macau gambling business is even through works independently but it is controlled and
monitored by government. It includes constitutional law, administrative law, tax law, company
la, contract law and criminal law. Currently Macau government is charging 35% tax on gambling
revenue plus 2-3% cess for socio-economic development. [Brooks, R. (2015)]

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In recent years, Macau has witnessed downfall in revenue growth of gambling. There can be
many reasons behind downfall but what significantly came out to be affecting revenue was
currency 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
these 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 Euro
gets 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 Review
Literature review is an important part of this study as this will clear the idea behind the
problem under study. These LR are acting as secondary source of information for this research
study which will help to open up key areas that are required to be touched to make this study
valid. We are going with various secondary sources such as research reports, journals, news
articles, websites, statistical reports, government reports etc.
Myongjee Yoo [et.al.2010] in their research report “The impact of currency exchange rate on
Las Vegas gaming demand” talked about currency rate fluctuation impact on Las Vegas
gambling business. The study took null hypothesis that currency fluctuation would affect
gaming 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 no
clear cut effect is there of exchange rate with gaming business as exchange rate is having
interrelationship with inflation rate. It is primarily the income of consumer and price level that
is affecting the business more particularly. The report also brought the fact that people are
visiting less to the region if currency exchange rate increases thus less investment is taking
place in gambling.

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Niall Fraser (2016) in his news article “Beijing takes aim at Macau gaming industry to cut
currency flight” talked about the strategy of China to balance currency exchange effect on
gaming industry in Macau. The news report said that Macau slashed withdrawal limit from
UnionPay Bank card holders from ATM machines from 10000 patacas to 5000 patacas. The step
was taken because an outflow of over 10 billion patacas withdrawn by people in one month in
China. As some of the casino owners allows UnionPay Bank cards to buy gaming chips, billions
of Yuan is flowing out of mainland China. Thus Chinese government decided to check on money
flow 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 are
affecting the gambling business in South Korean region. The study considered monthly data
from 2006 to 2016 which they put in Structural Vector Auto Regression (SAVR) model to
measure the dynamic effect of the factors on the number of casino visitors. Their research
study brought us the fact that people from Japan and Mainland China are almost ¾ of the entire
visitors to Korea were affected by the macroeconomic factors. The factors that were identified
the most significant were changes in oil price, exports and exchange rates and interest rate
changes. The study provided the fact that rise in exchange rate (implies real appreciation of
currency) has no significant impact but interest rate identified to be immediately impacting the
casino visitors. This research study identified that a rise in interest or exchange rate is reducing
the number of visitors and investments in casinos across Korean region. Particularly in Mainland
China, the exchange rate produces an impulsive response among the casino players. The report
also provided that the number of times, the exchange rate fluctuation takes place, the more
number of time casino visitors are showing variance in their visit and investment. The report
provided the reason behind exchange rate fluctuation effect on gambling business is that of a
nation people have the ability to travel overseas due to their higher currency value, in the event
of 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 plays
the role to affect gambling business.

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Frank Flanegin [et.al 2010] in their research report on US gaming market introduced the key
macro-economic factors that have significant impact on this business. The report started with
the hypothesis that Las Vegas gaming business is more or less recession proof. But the report
provided the fact that like other business, casino business too gets affected with the change in
economic condition. The report not only brought the effect of exchange rate but also
mentioned about the other macro-economic factors such as GDP, unemployment and stock
market returns have also significant impact on casino revenues. The study provided that GDP
has positive relationship on casino revenue while unemployment has negative relationship in
casino revenue. The report also identified the effect on inflation has also positive relationship
with 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 gambling
business. Although, the report didn’t mention about the impact of exchange rate but we came
to know about the related factors such as GDP, inflation rate and unemployment which has
more or less relationship with exchange rate and interest rate which can impact the gambling
business in Macau as well.
Paap [et.al2011] in their research report talked about the business cycle influence on
expenditures of the three major legalized gambling business which are lottery, casino gambling
and pari-mutuel wagering. The study covered the period from 1959 to 2010. The empirical
study provided the fact that it is the lottery business that is identified as recession proof. This
business is also characterized as higher growth in whole gambling business sector. Casino
business growth is identified in phase of expansion while no growth is found in recession
period. Incomes shocks is having no influence on gambling expenditure of casino in relation to
business cycle. Pari-mutuel wagering identified as having negative trend. Their research study
provided the result that people are opting government lottery during recession period majorly
due to lower price level. Apart from that in comparison to other gambling games, lottery is
identified as the cheapest game thus people are more or less consuming steadily (buying lottery
tickets). The report also mentioned that consumer demand for lottery products responds
positively to the expected value of gambling. People are finding winning huge amount
probability is more attractive than the fact of unemployment rate is lower or traditional

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economic opportunity looks better. The researcher in their research disclosed the point that
when the casino business reaches its saturation point (Las Vegas Gambling business) slower
increase is reflected even if the economic condition is favorable. The report also provided us
information about coupling business has better growth prospects than to simple gambling
place. The researchers identified that a gambling house with restaurants, accommodation and
bar 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 business
expansion. We came to know that when the economic condition is favorable, the business
houses are expanding. This can be utilized for exchange rate case as it is a part of economic
cycle.
Walker (N.A.) in his web article provided the exchange rate implication in gambling business
where he took the example of online poker game (a type of gambling game). The article said
that such platform where only one currency goes such as USD, the player needs to exchange
their money in USD to play games. The exchange rate in gambling is applied similar to normal
currency exchange regulation however this would cost more due to taxation in gambling
business. The author said that if the person is keeping the money in the wallet of the poker
game then such money would face high level of currency fluctuation if it is kept for a substantial
period of time. It can be positive or negative for the non-US poker player depending on the
currency 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 local
currency and there on number of visits and investment in gambling will come down for
outside US people.
 If the person keeps the money for longer period of time, it will be subject to exchange rate
fluctuation 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 will
affect less on their gambling habit.
 Players tend to wait for the exchange favorability to avoid cash out curse.

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The author finally commented the fact that for local casino players the exchange rate effect is
not an issue for the outsiders it is a significant issue. This study helped us to understand the fact
that Macau gambling business where majority of players are outside the region will certainly
face this issue which will be studied here.
Newsdesk (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 fact
that 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 the
Mainland China brings tighter monetary policy then, it would impact spending of gamblers of
Mainland China who accounts 65% of total gambling business in Macau.
Regarding the Macau gambling business exchange rate effect, the article provided the fact that
majority of gambling is done in Hong Kong Dollar which is getting stronger position against
international currency USD. Many Macau gamblers have their assets denominated in Chinese
Currency Yuan. Therefore if Yuan depreciates, it attracts more usage of HKD which is a more
expensive proposition. This is also helping the local currency Pataca to get better position
against USD.
Talking about the non-casino gambling then most of that is done with local currency. Thus such
a 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 appreciation
of 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 impact
the exchange rate which has the impact on gambling business as well especially when the
country 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 of
Macau gambling business. The article provided the fact that recent growth has taken place due
to higher investments of VIP players in Macau gambling business. Although the Chinese
government has taken measures like limiting the amount of money withdrawn from ATM in
Macau, fingerprinting all foreigners in the country and banning smoking at gaming table in

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order to reduce the capital outflow from Mainland China to Macau but the program didn’t have
much impact on investment. It is majorly because of the pegging reason of Pataca to HKD which
in turns pegged to USD providing stability to foreign gamblers to invest in Macau gambling
centres.
The article helped us to know about how exchange rate stability has more impact on gambling
business than other factors which were considered here.
Stassen (2013) in his web-journal talked about the dependence of Macau economy on its
gambling business which are influenced by many economic factors which can have both
positive and negative impact on its economy. The report began with the fact that Macau is now
world’s largest gaming destination in terms of investment and revenue surpassing Las Vegas
within a decade for almost 6-7 times. The reason behind such growth is highlighted as
increasing demand of Mainland China people of gambling due to the fact that Macau is the only
place in Chinese region where Government has legalized gambling business. This is the reason
why an increase of 15.1% took place in Chinese people in Macau for gambling. The author
viewed that Macau gambling business can’t be the sole driver to its economy as it is subject to
international monetary regulation such as restriction on investment or exchanges. Thus they
need to add accommodation, restaurant and other entertainment aspects to casinos in Macau
to manage economy.
From this report, we can bring out the points that gambling business growth is not possible
with only gambling or gaming facility as monetary and social effect will come thus if additional
services are introduced such as accommodation, bar, gulf course etc. then it will attract more
people to come and invest which will make the local currency stronger to other international
currency.
Juneja (2015) in her journal article provided the pros and cons of the currency pegging which
has direct impact on a nation economy. From the earlier literature review study we came to
know that Macau gambling business is having currency flow from Yuan (China Currency) and
HKD (Hong Kong Dollar) majorly which are pegged to USD since 1983. Thus the local currency

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Pataca is indirectly coming under this pegging with international currency. Thus this literature
review will study the impact of pegging on economy.
As pegging refers to stability in foreign exchange rate agreed between the two nations, it
provides stability to financial planning of government. By pegging the currency with USD or
Euro, government can ensure satiability in pricing of the importing items which otherwise will
face volatility in currency exchange. It allows the developed nation to manage the monetary
policy of the other nation by rationalizing local currency. This helps in preventing local
politicians and other influential persons to manipulate the economy or monetary policy of the
nation.
Talking about the Macau perspective then the government can ensure a fixed exchange rate
against HKD, Yuan and USD which are stronger currencies in world economy. As the pegging of
Pataca with HKD is there, it will neutralize the exchange rate with HKD which is pegged to USD.
Thus ultimately USD is pegged to Pataca. Similarly Chinese currency is pegged to USD and
majority of gamblers are from Mainland China thus they help in rationalizing USD in Macau.
However there are some concerns also present with this pegging of currency. The author
mentioned that there will be high level of foreign influence will be there on local currency by
the foreign players such as here USD, HKD and Yuan who will try to make their currency
stronger than local currency thus more currency outflow will take place which will not only
impact gambling business growth but also nation economy. Another problem is disequilibrium
of currency. The author sited example of Chinese Yuan and USD. She mentioned that when the
export rises, the local currency gets stronger but due to fixed exchange rate, the impact doesn’t
reflect in international trade that cause loss to the nation.
Here in this case, if the Macau currency Pataca gets stronger to HKD due to large investment of
Yuan and USD, still it won’t affect HKD investment due to fixed exchange rate and if the HK
gamblers wins more, loss will happen to Macau government due to higher cash outflow.
Christy (2018) in his journal article gave the example of how exchange rate changes can impact
the investment decision f an individual which we can correlate with gambling business in
Macau. The author said that investor faces difficulty when it comes to invest in overseas market

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more than in local market. Here the author took the example of an investor in US who invested
in shares of a Japanese toy company for $5000. The time when the investment took place the
exchange rate was $1USD=100 yen. He placed 100 shares therefore cost the person $50 per
share. When the shares were bought the trading was going at 5000 yen.
But after successful 6 months, the share price rose up to 6000 yen and he decided to sell all his
shares with an anticipation that $1000 will be returned as profit. But while sale took place it
realized only $5000.
The profit is lost as during the six month period the Yen exchange rate changed from 100 to 120
per dollar. Thus we if we divide then we would get that $50 per share after 6 months’ time.
If the person were from Japan, then he would have gained the 20% profit but for an outsider
there is no real gain.
By this example author proved that persons from overseas has to suffer exchange rate
fluctuation a lot. This can be applied in Macau gambling business as majority of people who are
investing here are from outside Macau (around 90%) thuds they are subject to high level
currency fluctuation which is why they don’t keep money with these gambling business and
reduces investments during fluctuation.
Fong [et.al1988] in their research study on Chinese casino gambling behavior talked about how
the people across Mainland China, Macau and Hong Kong are making investment in gambling
activities in Macau. For this study, they have taken risk factor into 3 categories such as risk
averse people, risk neutral people and risk taking people. On their questionnaire survey study,
we got to know that majority of the people were from Mainland China and Hong Kong who
accounted around 65% of the total respondents as gamblers. The result provided the fact that
64% of the people who do gambling in Macau found to be risk averse while only 4% identified
as risk takers. Around 87% of the respondents believe that they don’t fix amount for casino
visits. 71% of those normally goes with their budget. Further analysis provided that risk averse
gamblers put near about half of the monthly income while the risk takers spend more than
their monthly income. Risk neutral people invests maximum of whole monthly income. Risk

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neutral group spend 3 hours while risk averse and takers spend 2.6 hours on an average in a
casino.
This literature review provided that fact that majority of Macau gamblers are risk averse people
that means they look at their earning before they invest. As earning is subject to currency
exchange, this has significant impact on risk taking ability of individual. Due to higher presence
of risk averse people in Macau gambling, it seems to be affected more by exchange rate
changes.
We have considered the above mentioned literature reviews understudy to gain knowledge
over exchange rate, Macau gambling business and the impact of exchange rate on this
business. Meanwhile we also considered other related factors that has link to exchange rate.
We also considered examples of other regions which has similar impact like Macau to support
our analysis. Overall, the above literature review provided a strong base for our primary
analysis.
Research Methodology
Every research study follows a particular method or pattern or procedures in order to arrive at
the conclusion of the research. Research methodology is that framework that helps in
identifying, selecting, processing and analyzing primary and secondary information to arrive at
the final result. The methodology helps to validate and test reliability of the study that will be
useful for social, economic, political, technological or academic purpose depending on the area
of research. In this case, the areas of research is exchange rate effect on Macau gambling
business which covers a wide range of studies starting from economic aspects such as Macau
economy, gambling business, currency fluctuation to social and behavioral aspects such as
gambling acceptance and investment behavior in gambling.
Research Aim-
Any research without any purpose or aim doesn’t arrive at any conclusion. Thus this study we
are aiming at understanding the impact of exchange rate fluctuation on Macau gambling