Answer:
(a)
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(b)
The Hong Kong government is firmly committed to the maintenance of exchange rate stability of the Hong Kong dollar under the linked exchange rate system. The foreign currency risk involved in US dollar investment should therefore be minimal under the linked exchange rate system. Nevertheless, MPF involves very long-term contributions and liabilities, as most contributors may get back his or her contributions only in 20 to 40 years' time. It would therefore be imprudent to assume that foreign currency risk in US dollar investment is totally non-existent in this context.
As investment in US dollar still involves currency risk (as explained in (a)), it would be inappropriate to consider US dollar as the same as the Hong Kong dollar for the 30% restriction. Should an MPF fund invest in US dollar assets resulting in less than 30% of its holdings in HK dollar, however, the fund would still be within the acceptable limit if there is appropriate currency hedging to bring the effective currency exposure to within the 30% restriction. It would be useful to note that foreign currency risk is already very much on the minds of the investment managers of voluntary retirement funds in Hong Kong. Assets of these funds denominated in Hong Kong dollar have been ranging from about 25% to 45%.