WED 07 OCT 92 08:40
STRICTLY PERSONAL AND CONFIDENTLAL
HOUSE HONG KUNG.
31
33
2 3 2
香港下
三送
CSB-S/8 VI
12 ME Our Ref .
RAMS Your Ref.:
Mr. J.K. Gray,
Deputy Chairman,
Hong Kong Bank,
1 Queens Road Central, Hong Kong
Dear Join
F3.02
GOVERNMENT SECRETARIAT
LOWER ALBERT ROAD
-ONG KONG
Pension Safeguards
25 September 1992
11
Many thanks
for your helpful letter of September to Barrie wiggham. I'm afraid however that we still have a few questions on which I should be very grateful for your further expert advice.
As I understand the proposition, it is that 5 years before retirement, an officer would take out a loan in Hong Kong dollars. The loan would be on the basis that the commuted pension received in 5 years time would equal the face value of the loan plus any accrued interest över the 5 years. In practice the loan would be worked out actuarially with the Bank. The officer would then convert his Hong Kong dollar loan into a Sterling 5 year interest bearing deposit and place this deposit with the Bank.
If this is a correct interpretation, I should be grateful if you could let me know why there would be an immediate exchange rate risk to the Bank. I assume that this might be because any Bank would insist that the Sterling deposit be placed with the Bank as collateral in case of any default on the receivable commuted pension. This leads on to two other questions :