An Investigation On The Relationship Among Income Distribution, Consumer Behavior And Changing Trend Of Exchange Rate

The consumption of both domestic and foreign products causes an adjustment in demands of local and foreign currencies and thus leads to the change of exchange rate as exchange rate means the ratio to exchange currencies between two countries. Purchasing choice made by consumers is the basic factor of the demand combination of domestic and foreign products. A change in total purchasing choices forms a new demand combination of domestic and foreign products and then a change in the flow of the relative currencies. This will cause an adjustment at the exchange rate.This dissertation investigates a method to measure the range of changes of total purchasing choices and hence establishes the relationship between the change of total purchasing choices and the changing trend of the exchange rate. Our measuring subjects are groups of citizens with different income levels. The demand preference of each group towards domestic and foreign products is formed little by little orderly throughout their lives and will not be changed so easily even though other factors have changed. Total income during an economic process is distributed unevenly into these groups and their purchasing choices will change due to an increase or decrease in their income. The demand combination of domestic and foreign products at different periods depends on the total purchasing choices of each income group. The difference between different periods bring along the change of exchange rate.By applying the study conclusion, a new point of view is put forward to explain the outbreak of the financial crisis in Southeast Asia. The main factor of the crisis was due to the phenomenon of economical growth on one hand and polarized income distribution on the other hand. This resulted in the cash flow to be fallen into the hand of high income group that preferred foreign products. The growth of demand of foreign products was larger than that of domestic products and therefore implied to the pressure of the depreciation of local currency. As a system of fixed exchange rate was practiced in these countries, of which the exchange rate was overestimated over a long period of time, financial crisis was absolutely unavoidable.The coexistence of economical growth and the polarized income distribution has been the characteristic of the economical development in Hong Kong for a long time. It matches with the target audience of the dissertation. The steadiness of the system of link exchange rate in Hong Kong is discussed at the income distribution's point of views in which the points of concern are also raised. The authorities concerned should not ignore the situation of income distribution during the economical development in Hong Kong so as to avoid Hong Kong recommitting the same error which happened in Southeast Asia.