XN000022-1973-02-28 — Page 13

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Wednesday, February 28, 1973

This general hardening of interest rates in London, he said, meant

that there would be, if the market did not improve before then, a book

loss of about $190 million compared with a gain of $72 million last year.

Mr. Haddon-Cave said that "a much more serious factor" was the

floating of sterling,

The resultant changes in the foreign exchange value of the Hong

Kong dollar had caused an additional reduction of $295 million in the

book value of Hong Kong's investments.

Moreover, the free surplus of $913 million in the Exchange Fund,

which was taken into account in estimating Hong Kong's total fiscal

reserve position at March 31, 1972, had been wiped out," the Financial

Secretary said.

This was because of the weakness of the gilt edged market and

the obligation to make compensation payments to the banks under the

Exchange Fund Guarantee Scheme for the losses in Hong Kong dollar terms

they incurred on their sterling investments.

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