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8
14.
Second, only banks can make use of the fixed
rate of 7.80 to buy US dollar balances with Hong Kong
dollar notes or vice versa. Non-bank customers do not
have direct access to this rate. To take advantage of
this rate for arbitrage purposes a non-bank customer
would need the help of a bank.
15.
Third, the transaction costs of arbitrage are
fairly high, both in terms of ensuring that notes are
transported safely and in terms of disturbing the normal
banker
-
customer relationship.
16.
Fourth, arbitrage is a time consuming and somewhat
complex process. Those seeking profit will tend to be
attracted to the more apparent opportunities for gain
for example by speculating in the foreign exchange market.
When there is a speculative trend developing in the exchange
rate, a foreign exchange dealer can make much more by
two short telephone calls buying or selling Hong Kong
dollars against US dollars than to engage in the tedious
process of arbitrage.
17.
Fifth, those who arbitrage would lose out if
the link was abandoned whilst they were in the middle
of a transaction. At times of speculative pressure on
the exchange rate, arising from the mistaken belief that
/the link
G.F. 316
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