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IB Economics Extended

EssayWhat effect would the removal of the US-HKD peg, and theestablishment of a managed float regime (dirty float) have

on 3 different income groups in Hong Kong?

Session:May 2014

Candidate Name:Clive Ng

IB Subject of Essay:Economics (HL)

Supervisor Name:Mr. Clarke

Word Count: 3962

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Table of ContentsTitle Page ...................................................................................................................................................... 1

Table of Contents ......................................................................................................................................... 2

Abstract ........................................................................................................................................................ 3

Research Question .................................................................................................................................... 3

Method of Approaching Investigation ...................................................................................................... 3

Summary of Conclusion ............................................................................................................................ 3

Introduction .................................................................................................................................................. 4

Reviewing Exchange Rate Arrangements .................................................................................................... 6

The Free-Floating Exchange Rate .............................................................................................................. 6

The Fixed Exchange Rate......................................................................................................................... 11

Investigation ............................................................................................................................................... 14

Hypothesis ............................................................................................................................................... 14

Justification of Hypothesis ...................................................................................................................... 14

Method of Data Collection ...................................................................................................................... 17

Results of Investigation .............................................................................................................................. 18

Raw Data ................................................................................................................................................. 18

Data Collection Review ........................................................................................................................... 33

Data Analysis ........................................................................................................................................... 33

Evaluation ................................................................................................................................................... 35

Bibliography................................................................................................................................................ 37

Appendix ..................................................................................................................................................... 38

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ABSTRACT

Research Question

This essay investigates the effects of the removal of the US-HKD peg, and the establishment of a

managed float regime (dirty float), on 3 different income groups in Hong Kong.

Method of Approaching Investigation

To investigate these effects, three income groups were surveyed, with questions focusing on

changes in spending and saving habits, if any, in response to an appreciation or devaluation of the

Hong Kong dollar due to the removal of the fixed-exchange rate 1arrangement. The data from these

surveys were complemented with research and evidence collected from external sources, to form

the conclusion.

Summary of Conclusion

After considering the evidence presented, it is suggested that the Hong Kong dollar is presently

being kept below market equilibrium. With this educated assumption, and the results from the

surveys, it was argued that the removal of the peg would have a net overall benefit on the three

income groups, and people of Hong Kong in general. Various implications, such as the history of

speculative instability of free-floating exchange rates in Hong Kong, and freedom of monetary

policy were also considered when forming this conclusion.

Though this essay explores the issue in great detail, the scope of the essay cannot be said to be very

wide. The case of Hong Kongs monetary and exchange rate policy is unique, in that it lacks a central

bank in the traditional sense. Furthermore, economic situations and environments vary from

country to country, and their conditions should be fully considered on a case-to-case basis before

an exchange rate policy is decided on.

(Abstract word count: 258)

1Where the value of a currency in terms of another is fixed at a certain level

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Introduction An overview of the history of exchange rate arrangements in Hong

Kong

The legal tender of Hong Kong, currently the Hong Kong dollar, has recently resurfaced as a subject

of debate. As the economy of Hong Kong grew, it has become the eighth most globally traded

currency (Triennial central bank, 2010). Managed by the Hong Kong Monetary Authority (HKMA),

the current exchange rate arrangement was established in October of 1983, where the dollar was

pegged to the US dollar in a fixed exchange rate system, with US$1 equating to HK$7.80. (Hong Kong

Monetary Authority)

At its inception, the government declared the silver dollar as Hong Kongs legal tender (at the time,

the worlds currencies were also backed by precious metals). Due to a depreciating2US dollar, the

link was broken in 1974 - the Hong Kong dollar was allowed to free-float.

This bought a period of instability to Hong Kong. Initially, there were no significant problems - the

exchange rate between the HK and US dollar was quite consistent for several years, and the price

level was relatively stable. However, real GDP3began to fluctuate noticeably. Inflation4eventually

became a serious problem, reaching 15.5% by 1980. A lack of confidence in the dollar caused by the

impending handover of sovereignty of Hong Kong from the UK to China, delays in the talks towards

the Sino-British Joint Declaration, and an overall atmosphere of uncertainty amongst investors and

firms regarding the future of Hong Kong, led to Black Saturday in 1983, where the value of the

Hong Kong dollar hit an all-time low, at HK$9.6 to one US dollar. Stores and businesses even

began quoting prices in US dollars (Jao, 1998).

The HKMA responded by establishing the current Hong Kong-US dollar peg, at a fixed rate of

HK$7.80 to one US dollar, and maintains this peg by buying and selling Hong Kong dollars

accordingly.

However, a growing number of people are starting to question the fixed exchange rate, bringing this

topic back into debate and consideration. Economist Professor Joseph Yam, who played a part in

establishing the peg, called for a reevaluation of the system (Yam. J, 2012), despite much criticism

2Currency decreasing in value with respect to foreign currencies

3Gross Domestic Product: value of all goods and services in the economy

4An increase in the general price level of goods and services

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from politicians. As the global economy lingers in the aftermath of the 2011-2012 recession, and it

is realized that the monetary policies of the United States Federal Reservedont reflect the needs of

Hong Kongs economy, the succession of the 30-year-old fixed exchange rate is certainly a valid

topic for debate.

This topic was chosen for this extended essay because it relates to the fact that Hong Kong lacks a

central bank in the traditional sense, with the HKMAs monetary policy being solely to maintain the

fixed rate. The subject of money and exchange rate policies is also an area of interest for this author.

To evaluate the possible effects of the unpegging of the dollar, the research question What effect

would the removal of the US-HKD peg, and the establishment of a managed float regime (dirty

float) have on 3 different income groups in Hong Kong?was formed.

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Reviewing Exchange Rate Arrangements

The Free-Floating5Hong Kong Dollar

The following diagram illustrates the exchange rate6of a free-floating Hong Kong dollar:

Supply and Demand of a Free-Floating Currency

5A completely free-floating exchange rate is purely dictated by market forces, with no government intervention.

The value of a currency against other currencies is determined via supply and demand6The exchange rate is the value of a currency in terms of another

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The above diagram illustrates how the value of a currency is determined by a freely floating

exchange rate. The value of one unit of a currency, in terms of another currency, settles at the

equilibrium.

Increase in Demand of a Currency

An increase in demand for a currency will change its value. This can result from a number of factors.

For example, an increase in interest rates in Hong Kong can cause an increase in demand for Hong

Kong dollars on the global currency market, as investors may wish to take advantage of the

increased interest rates (i.e. saving in that currency).

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Another factor is the countrys balance of payments7. With a considerable trade surplus8, the

currency will tend to be greater in value, as there is more demand for the currency. Conversely,

with a trade deficit, the currency will tend to be smaller in value, as there is less demand for the

currency on the foreign exchange market.

One reason for the erratic changes in the Hong Kong dollars exchange rate during its free-float

period was the speculation9that resulted from the turbulent political atmosphere. Considering the

speculative activity stemming from the political atmosphere during the free-floating period, as well

as the approaching 1997 transfer of sovereignty of Hong Kong to China, it was decided for the peg

to be installed and maintained.

Speculation is a key factor that determines foreign exchange rates, as speculators may sell

significant amounts of a currency in anticipation of its expected depreciation, or buy should they

expect the currency to appreciate. (What determines the value of an exchange rate, tutor2u.net)

Hong Kong is no stranger to the self-fulfilling prophecy10situation. Even up to this day, the fear of

speculative attacks is still a common argument for supporting the dollar peg.

7For the purposes of this essay, balance of payments = exports - imports

8Where exports are significantly greater than imports

9Financial transactions with high risk, but high possible gain from fluctuations in market value of the traded

asset/good in question10

Where speculators buy a currency in anticipation that it will appreciate, causing appreciation in itself, and vice

versa

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Increase in Supply of a Currency

Likewise, supply can change and alter the value of the currency. An increase in supply will result in

a depreciation of the currency. This can be due to a number of reasons - for example, if many

speculators sell a currency on the foreign exchange market, ceteris paribus, the supply of that

currency will increase. The policies of the central bank of the country is also a large factor, as these

institutions control the money supply, keep foreign currency reserves and implement

monetary/fiscal policies.

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An obvious advantage to the free-floating exchange rate regime is that it allows for the HKMA to

implement monetary policies according to Hong Kongs economy and its macroeconomic goals,

instead of solely committing to fixing the value of the currency against another one. This means the

central bank has the flexibility to change the interest rates and the money supply, as well as

controlling OMOs11should they see fit, according to the state of the economy at the time, whereas in

a fixed exchange rate system, interest rates will always follow close to the interest rates of the

country the currency it is pegged to.

The free-floating exchange rate also tends to correct balance of payments disequilibriums. For

example, with a balance of payments deficit, the depreciating currency means it is now less valuable

in the foreign exchange market, so exports become less expensive, therefore increasing the number

of exports, and imports become more expensive, thus decreasing the number of imports. This

corrects the balance of payments deficit. Similarly, a balance of payments surplus can be alleviated

as the currency appreciates, and as a result imports increase and exports decrease.

The effects of significant exogenous shocks12may also be dampened or mitigated by a free-floating

exchange rate. The 1973 OPEC oil embargo, for example, served as an exogenous supply shock to

many western countries (Zycher). Had their currencies not been allowed to depreciate, the inflation

rate resulting from the embargo would have meant that they would have been made very

uncompetitive. free-floating exchange rates give flexibility to countries to adjust to such shocks.

11Open Market Operations: Central bank buys or sells government bonds on the open market

12Sudden, unexpected change resulting from factors outside the model/economy

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The Fixed Exchange Rate Hong Kong Dollar

Perhaps the most notable role of the HKMA is to manage and control Hong Kongs exchange rate,

such that it is pegged to the US dollar at 7.8 HKD = 1 USD. To maintain this fixed rate, the HKMA

keeps a significant amount of foreign currency reserves, with $305.7 billion US dollars at its

disposal as of June 2013. (HKMA, 2013)

The HKMA buys and sells Hong Kong dollars to manipulate its price, so that it is constantly at, or

around, the rate it is committed to.

Increasing Demand in a Fixed Exchange Rate Arrangement

In the example above, the market equilibrium value of the Hong Kong dollar has changed due to an

increase in demand, from demand 1 to demand 2. With the exchange rate remaining at $7.8, there is

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an excess in demand for US dollars. The HKMA establishes a tight ceiling and floor (or snake in the

tunnel) for the exchange rate (as a true peg at $7.8 would be in practice difficult to achieve at all

times), stepping in to sell US dollars (thus diminishing their USD reserves), increasing the supply of

US dollars, shifting the supply curve outwards, so that the exchange rate equilibrium is

reestablished at $7.8.

Decreasing Demand in a Fixed Exchange Rate Arrangement

Likewise, the HKMA will intervene in the case of decreasing demand for US dollars, which would

decrease the value of 1 USD in HKD. There is an excess in supply of US dollars at the fixed $7.8 rate.

The HKMA reduces the supply of US dollars by buying US dollars on the foreign exchange market

(expanding US dollar reserves). This shifts the supply curve backwards, reestablishing the target

exchange rate.

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The fixed exchange rate reduces speculative activities and increases, especially in terms of imports

and exports - a prominent and very important part of Hong Kongs economy.

Increased confidence may help promote trade, which Hong Kong is very reliant on. Foreign

importers and exporters are more likely to trade due to certainty and stability of the currency. This

also promotes FDI13and thus, capital inflows and overall economic growth.

This arrangement also stabilizes import prices, and allows for firms to enter long term agreements

and contract formulation - especially for exports. Both imports and exports are important for Hong

Kongs trade-dependent economy.

Once again, the trade-off made in this arrangement is the ability to implement Hong Kongs own

monetary policy. However, the effects of speculative activity in terms of exchange rates are not

completely eradicated. For example, speculators may be led to believe the HKMA is considering the

removal of the peg, and therefore buy Hong Kong dollars in anticipation for an appreciation in a

free-floating exchange rate. The HKMA may have trouble maintaining the peg in such situations,

even with ample foreign currency reserves.

With the increasing tradability of the Chinese Yuan, and the need for traditional monetary policy in

recent years, more and more are questioning the USD peg in todays economy. The following

investigation will aim to explore the effects of the replacement of the fixed exchange rate on the

economy of Hong Kong with a more free-floating exchange rate system (i.e. a dirty-float, a

managed free-float)

13Foreign Direct Investment: direct investments into firms made from another country

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Investigation

Hypothesis Possible effects of unpegging the dollar

It is increasingly argued that Hong Kong should re-evaluate its dated fixed exchange rate system,

and should look at alternatives, like a managed free float.

This would allow Hong Kong to implement its own monetary policies according to the state and

situation of its own economy, as the monetary policies of the Fed do not necessarily reflect or are in

favour of Hong Kongs economy. In a period of rapid growth and expansion, the HKMA is restricted

from implementing policies to prevent the overheating of the economy, possibly resulting in

inflation and speculative bubbles14that can lead to a more serious recessionary bust period that

will follow the boom. During a recession, Hong Kong has no options in terms of monetary policies,

and the peg may reduce competitiveness against other currencies, further hindering and prolonging

its recovery.

The following investigation will study the effects of such a change in exchange rate policies on three

significant socioeconomic groups of Hong Kong, to aim to understand how Hong Kongers will be

affected.

Justification of Hypothesis

There is evidence to suggest that presently, the Hong Kong dollar is being kept artificially weak (the

market exchange rate is higher than $7.8 HKD to $1 USD) by the actions of the HKMA, and that this

has been the case since the 1990s (Hao, 1997). It is therefore probable that, should the peg be

removed, the value of the Hong Kong dollar would increase, similar to when the Chinese Yuan-US

dollar peg was removed in 2005 and replaced with a managed exchange rate/dirty-float based on a

basket of foreign currencies, after which the Yuan strengthened 30 percent compared to the US

dollar (Li & Lee, 2012).

14Speculation can cause prices to rise significantly above the asset's intrinsic value, leading to a rapid expansion

(bubble) and a subsequent contraction (burst)

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US Dollar Trade-weighted index (2002 - 2012)

(TradingEconomics.com)

It is important to note the value of the US dollar in recent years, where it has depreciated

considerably. With the expansionary policies that the Fed has taken, like four rounds of quantitative

easing, which creates credit and further devalues the US dollar, it is inevitable for the Hong Kong

dollar to devalue alongside.

Lacking natural resources, it is inevitable that Hong Kong imports most of its goods (and thus there

is a visible imbalance of payments). The weak US dollar and HK dollar can prove to be inflationary,

as visible imports become more expensive. The peg also means that the Hong Kong interest rate is

always closely linked to the American counterpart, and thus are indirectly set by the Fed with the

interests of the American economy in mind. With the Feds lending rates being close to 0% in recent

years, this has prompted loans that would not have been made should the interest rates be higher,

causing the already high home prices of Hong Kong to increase even more, rising by 80% from 2009

to 2012 (Panic in Hong Kong, 2012).

There were, of course, exceptions to the artificially low Hong Kong dollar exchange rate, namely the

recession of 1997 during the Asian financial crisis, where Hong Kongs financial market was under

severe speculative attack during the financial crisis (Yip, 2005).

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In the months leading up to the crisis, market speculation meant that the fixed exchange rate was

put under intense pressure. The HKMA sold US dollars to maintain the peg, and raised overnight

interest rates to record highs, reaching 300% on October 23rd, 1997 (Liu, 2010). This resulted in

mass lay-offs and wage reductions to reduce labour costs, as well as significant drops in prices of

assets like shares on the stock market, and real property, further pushing the economy into

recession. Whereas countries with a free-er exchange rate arrangement, like Singapore, allowed

their currencies to depreciate with other currencies (i.e. of their trading partners), Hong Kongs

dollar was kept artificially high due to the fixed exchange rate:

US Dollar Trade-weighted Index (1998-2002)

(TradingEconomics.com)

The graph above shows the US dollars performance compared to a basket of major foreign

currencies, such as the Euro, Pound and Canadian Dollar, during the period of 1998 and 2002.

Overall, the US dollar appreciated significantly throughout this period - Thus Hong Kong dollar was

kept overvalued compared to other major currencies, instead of being allowed to depreciate. This

has had negative effects on Hong Kongs economy, which was then already in recession, reducing

the competitiveness of the Hong Kong dollar in the international market. This is another example of

the Hong Kong dollar-US dollar peg failing to protect Hong Kongs economic interests.

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Method of Data Collection

To study the possible effects of the unpegging of the Hong Kong dollar, three socioeconomic

groups in Hong Kong were selected:

Expatriates - a wide range of expatriates working in Hong Kong, from international school

teachers to train engineers

Doctors - locally-based doctors or healthcare practitioners representing the local

middle/upper-class income groups

Domestic helpers - representing the lower income expats working in Hong Kong

Three surveys were constructed to represent the overall Hong Kong economy, and to analyse these

groups spending and saving habits in terms of foreign currency, and based on these preferences,

changes that they may make should the Hong Kong dollar appreciate or depreciate. A minimum

sample size of 10 individuals was set for each socioeconomic group. The surveys were conducted

electronically, with the exception of the domestic helpers group. (See Appendix I for Surveys)

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Results of Investigation

Raw Data

Expats

Firstly, the expats group was most likely to be affected by a change in the value of the Hong Kong

dollar.

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31.3% of the respondents save 20% or more of their incomes in a foreign currency, while 18.8%

said they spend 20-39% of their incomes in a foreign currency.

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62.5% of the respondents felt their households would be affected significantly by a 20%

depreciation in the Hong Kong dollar. Additionally, buying property overseas seems to be an

attractive option for expats should the Hong Kong dollar appreciate, with 81.3% of the samplechoosing it over the other 5 options.

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When asked about possible spending or saving changes that may be made should the Hong Kong

dollar strengthen significantly, responses included increasing consumption on imports, fewer

savings in Hong Kong dollars, and spending on property abroad.

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Domestic Helpers

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When asked about areas of spending that would be adjusted should the dollar strengthen, most

answers included spending on food, clothing and entertainment.

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Doctors

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In terms of their patients of the doctors, only 0-19% of them are expats. When asked about the

actions that may be taken should the Hong Kong dollar appreciate significantly, most results were

split between increasing spending on imported foods, and reducing investments in foreign

currencies. 18.2% would also consider overseas education for their children more favourably.

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Most respondents did not have any significant assets or savings denominated in a foreign currency.

71.4% of the respondents believed a significant depreciation of the Hong Kong dollar will affect

their households significantly.

In the event of a 50% depreciation of the Hong Kong dollar, 28.6% considered the possibility of

leaving Hong Kong quite likely, perhaps due to increased import prices, a stimulation in exports

the resulting demand-pull inflation.

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When asked about areas of spending that may be adjusted should the Hong Kong dollar strengthen

considerably, travelling and holidays overseas, spending on automobiles and buying imported

goods were popular answers.

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save in foreign currencies should the Hong Kong dollar appreciate. In fact, 29% would decrease

spending should the dollar appreciate - possibly to send more income home. Though it may not

necessarily translate into an increase in spending, these individuals will benefit from a free-floating

Hong Kong dollar if it appreciates.

A weak dollar seems to be a disincentive for all three groups to work in Hong Kong. It is very likely

for most of them to leave Hong Kong should the dollar depreciate by 50%. Almost 30% of the

doctors considered it quite likely for them to leave in the same situation. Furthermore, a

considerable 63% of expats and 71% of doctors and their households would be significantly

negatively affected by a weaker Hong Kong dollar.

Though Hong Kong does not export much in terms of tangible goods, it is a service-based economy

and exports many services. One notable export industry is tourism. With a total tourism

expenditure of HK$296.6 billion in 2012 ("Tourism performance in 2012" 2013), Hong Kong relies

significantly on the injections from exporting tourism services. The service sector will thus likely

suffer from an appreciation (as exports decrease and become more expensive). Conversely, tourists

from Hong Kong will benefit by being able to spend with a stronger dollar.

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Evaluation of replacing the fixed rate with a managed float exchange rate arrangement

Hong Kong has a largely service-based economic structure. There is no choice but to import most of

our visible goods (visible trade), and export services (invisible trade), considering the lack of land

and other natural resources.

The survey results suggest a stronger dollar would be largely beneficial to all three groups. An

appreciating dollar means imports - which Hong Kong is reliant on, become more affordable. For

helpers, it would mean their incomes in terms of their home countries currencies will increase. For

doctors and expats, leisurely spending on vacations and travelling would increase, which may

improve standards of living in Hong Kong, and their childrens overseas higher education costs

(which are significant invisible imports) are now more affordable, possibly allowing Hong Kong to

improve their workforce with more trained and educated workers. Overall, the results suggest

costs of living will decrease due to cheaper imports.

The results suggest a stronger Hong Kong dollar may also have many other advantages. Considering

how many would leave due to a weaker Hong Kong dollar, dollar appreciation is likely to be an

incentive for foreigners to live and work in Hong Kong, expanding Hong Kongs economy and

promoting growth in the long run.

Moving away from the fixed exchange rate also allows the HKMA to implement its own monetary

policies, breaking free from the relentlessly depreciating US dollar. This may be used to address

issues like the low interest rates in Hong Kong pressuring housing prices to go up, and allowing the

Hong Kong dollar to depreciate naturally in recessions and crises so the dollar remains competitive

on the foreign exchange market.

However, a completely free-floating exchange rate may not be the answer. Hong Kong may see

another period of volatile exchange rates and inflation should it come under speculative attacks -

especially when considering Hong Kongs reliance on foreign trading, which can be a major factor of

the exchange rate, thus allowing the dollar to be very susceptible to foreign speculative activities.

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Perhaps the ideal arrangement would be a balance between a completely free-floating regime and a

fixed exchange rate. This arrangement may be achieved by widening the existing bands where the

dollar is allowed to float between, and index the bands to a basket of currencies.

The HKMA not only has the freedom to implement monetary policies that reflect Hong Kongs

macroeconomic goals and not the United States, but also a level of control and prevention against

speculative attacks and a volatile dollar, maintaining a level of confidence amongst investors and

consumers, as well as an exchange rate arrangement where the Hong Kong dollar is not kept

artificially low. Such an arrangement is a good compromise between both sides of the debate, and

will likely prove to be beneficial to Hong Kongs economy in the long-run

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review.html

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Tourism performance in 2012 . (2013, July 4). Retrieved from

http://www.tourism.gov.hk/english/statistics/statistics_perform.html

http://www.hkma.gov.hk/media/eng/publication-and-research/background-briefs/hkmalin/04.pdfhttp://www.hkma.gov.hk/media/eng/publication-and-research/background-briefs/hkmalin/04.pdfhttp://www.hkma.gov.hk/media/eng/publication-and-research/background-briefs/hkmalin/04.pdfhttp://www.hkma.gov.hk/media/eng/publication-and-research/background-briefs/hkmalin/04.pdfhttp://www.tutor2u.net/economics/content/topics/exchangerates/forex_markets.htmhttp://www.tutor2u.net/economics/content/topics/exchangerates/forex_markets.htmhttp://www.hkma.gov.hk/eng/key-information/press-releases/2013/20130607-3.shtmlhttp://www.hkma.gov.hk/eng/key-information/press-releases/2013/20130607-3.shtmlhttp://www.bloomberg.com/news/2012-06-12/hong-kong-pledges-currency-peg-after-yam-urges-review.htmlhttp://www.bloomberg.com/news/2012-06-12/hong-kong-pledges-currency-peg-after-yam-urges-review.htmlhttp://www.bloomberg.com/news/2012-06-12/hong-kong-pledges-currency-peg-after-yam-urges-review.htmlhttp://facingchina.me/2012/06/13/panic-in-hong-kong-architect-proposes-de-pegging-us-hkg-dollars/http://facingchina.me/2012/06/13/panic-in-hong-kong-architect-proposes-de-pegging-us-hkg-dollars/http://www.econlib.org/library/Enc/OPEC.htmlhttp://www.econlib.org/library/Enc/OPEC.htmlhttp://www.econlib.org/library/Enc/OPEC.htmlhttp://www.tourism.gov.hk/english/statistics/statistics_perform.htmlhttp://www.tourism.gov.hk/english/statistics/statistics_perform.htmlhttp://www.tourism.gov.hk/english/statistics/statistics_perform.htmlhttp://www.econlib.org/library/Enc/OPEC.htmlhttp://facingchina.me/2012/06/13/panic-in-hong-kong-architect-proposes-de-pegging-us-hkg-dollars/http://www.bloomberg.com/news/2012-06-12/hong-kong-pledges-currency-peg-after-yam-urges-review.htmlhttp://www.bloomberg.com/news/2012-06-12/hong-kong-pledges-currency-peg-after-yam-urges-review.htmlhttp://www.hkma.gov.hk/eng/key-information/press-releases/2013/20130607-3.shtmlhttp://www.tutor2u.net/economics/content/topics/exchangerates/forex_markets.htmhttp://www.hkma.gov.hk/media/eng/publication-and-research/background-briefs/hkmalin/04.pdfhttp://www.hkma.gov.hk/media/eng/publication-and-research/background-briefs/hkmalin/04.pdfhttp://www.hkma.gov.hk/media/eng/publication-and-research/background-briefs/hkmalin/04.pdf

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Appendix: Surveys for Investigation

Doctors Group

This is part of an Economics IB extended essay on exchange rate policies in Hong Kong.

Hong Kong currently employs a fixed exchange rate policy, with the value of the Hong Kong dollar pegged at 7.8 HKD to 1US dollar. This essay will aim to explore alternative exchange rate policies and their possible effects of Hong Kong's

economy. Please bear in mind: should the value of the Hong Kong dollar increase, the value of income to be saved in

foreign currencies would also increase, imports would become cheaper, and exports would become more expensive, and

vice versa.

Please answer the following questions to the best of your knowledge/judgement. Many thanks.

*Required

Approximately what percentage of your income do you save in a foreign currency? *

o 0-19%

o 20-39%

o 40-59%

o 60-79%

o 80-100%

Approximately what percentage of your income do you spend in a foreign currency? *

E.g. university fees, mortgage payments

o 0-19%

o 20-39%

o 40-59%

o 60-79%

o 80-100%

Roughly what percentage of your patients are expats? *

o 0-19%

o

20-39%

o 40-59%

o 60-79%

o 80-100%

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o Unsure

Should the value of the Hong Kong dollar increase significantly, which of the following would you do? *

More than one option may be selected

o Increase spending on imported food

o Increase spending on imported clothing

o Consider overseas education (e.g. for children) significantly more favorably

o Reduce investments in foreign currencies

o Consider buying property overseas

Do you have any significant assets/savings overseas? (denominated in a foreign currency) *

o Yes

o No

Do you consider Hong Kong as your main home? *

o Yes

o No

Please name any significant areas of spending that you would adjust should the Hong Kong dollar strengthen

significantly.

If the value of the HK$ was to fall significantly against major foreign currencies, how badly would you and your

household be affected?

o Very little

o Significantly

o Extremely seriously

If the HK$ were to fall by 50%, how likely is it that you would consider leaving Hong Kong?

o Extremely unlikely

o Quite likely

o Very likely

o Almost certain

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Expats Group

This is part of a research essay on the exchange rate policies in Hong Kong.

Please bear in mind: should the value of the Hong Kong dollar increase, incomes saved in foreign currencies would also

increase, imports would become cheaper, and exports would become more expensive, and vice versa.

Please answer the following questions to the best of your knowledge/judgement. Many thanks.

*Required

Approximately what percentage of your income do you spend in a foreign currency? *

for example, university fees, mortgage payments

o 0-19%

o 20-39%

o 40-59%

o 60-79%

o 80-100%

Approximately what percentage of your income do you save in a foreign currency? *

o 0-19%

o 20-39%

o 40-59%

o 60-79%

o

80-100%

Should the value of the Hong Kong dollar increase, which of the following would you do?

More than one option may be selected

o Increase spending on imported food

o Increase spending on imported clothing

o Consider overseas education (e.g. for children) significantly more favorably

o Reduce investments in foreign currencies

o Consider buying property overseas

Do you consider Hong Kong as your main home? *

o Yes

o No

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Please name any significant areas of spending that you would adjust should the Hong Kong dollar strengthen

significantly.

How would your spending/saving habits alter should the Hong Kong currency strengthen?

If the value of the HK$ was to fall 20% against major foreign currencies, how badly would you and your

household be affected?

o Very little

o Significantly

o Extremely seriously

If the HK$ was to fall by 50%, how likely is it that you would consider leaving Hong Kong?

o Extremely unlikely

o Quite likely

o Very likely

o Almost certain

With regard to your occupation, how would a stronger Hong Kong dollar affect your income?

o Income would decrease significantly

o Income would decrease a little

o

No changes/negligible changes

o Income would rise a little

o Income would rise significantly

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Helper's Group

This is part of a research essay on the exchange rate policies in Hong Kong.

Please bear in mind: should the value of the Hong Kong dollar increase, incomes saved in foreign currencies would also

increase, imports would become cheaper, and exports would become more expensive, and vice versa.

Please answer the following questions to the best of your knowledge/judgement. Many thanks.

*Required

Approximately what percentage of your monthly income do you send back to your home country? *

o 0-19%

o 20-39%

o 40-59%

o 60-79%

o

80-100%Should the Hong Kong dollar strengthen, how would this affect how much money you send back home?

Not as a proportion of total income, but the actual amount of money sent back.

o A significant increase

o A small increase

o No change

o A small decrease

o

A significant decrease

Approximately what percentage of your income do you save in Hong Kong dollars? *

o 0-19%

o 20-39%

o 40-59%

o 60-79%

o 80-100%

Should the Hong Kong dollar strengthen by 20%, how would this affect how much of your income you spend?

o Spending increases significantly

o Spending increases a little

o No change

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o Spending decreases a little

o Spending decreases significantly

Please name any significant areas of spending that you would adjust should the Hong Kong dollar strengthen by

20%.

If the HK$ was to fall by 50%, how likely is it that you would consider leaving Hong Kong to work elsewhere?

o Extremely unlikely

o Quite likely

o Very likely

o Almost certain