DE MUNU KUMO.
WED W/ UGT 32 08:13
PG.65
-2-
3. Harbinson, Esq., J.P.,
Deputy Secretary for the Civil Service
Continued....
7th October 1992
A.
5+
AS
1 ft
a bank must maintain capital to support any expansion its balance sheet there would still be an interest margin payable, even with an external guarantee. It is difficult το quantify what the known costs would be without knowing the identity of the guarantor buc guarantee from the Government would certainly command very fine margins. A ten year scheme would of course be more expensive than a five year scheme since price is determined by the loan term as well as by the quality of the security,
You asked for my
advice in two other areag; a proposal for a purchase of receivables at a discounted rate and an exchange rate hedging mechanism. The problem with both of these proposals is that it would be almost impossible to price them; this is because HKD interest rate quotations are not generally available beyond one year and for 5 or 10 years banks would find it difficult if not impossible to cover their interest rate risk. discount rate for the receivable and a forward exchange rate for the hedge can only be determined by reference to the interest rate for the period in question.
A
I hope I have dealt adequately with the points raised in your letter. I leave on
business trip this weekend and
will not be returning to Hong Kong until the end of the Month but in my absence please feel free to contact David Eldon if you have any further queries.
You
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c.c. D.G. Eldon, Esq., General Manager Hong Kong and China