XN000022-1988-07-15 — Page 8

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FRIDAY, JULY 15, 1988

9.

THUS UNDER THE NEW ACCOUNTING ARRANGEMENTS, THE SUPPLY OF HONG KONG DOLLARS IN THE INTERBANK MARKET WILL INCREASE AND INTERBANK INTEREST RATES WILL EASE WHEN:

(A)

THE EXCHANGE FUND BUYS FOREIGN CURRENCY WITH HONG KONG DOLLARS; OR

(B)

(C)

THE EXCHANGE FUND LENDS HONG KONG DOLLARS IN THE INTERBANK MARKET; OR

DEBT CERTIFICATES ARE REDEEMED FROM THE TREASURY AND THE BALANCE IN THE TREASURY'S ACCOUNT WITH THE EXCHANGE FUND IS REDUCED.

SIMILARLY, THE SUPPLY OF HONG KONG DOLLARS IN THE INTERBANK MARKET WILL DECREASE AND INTERBANK INTEREST RATES WILL FIRM WHEN:

(A) THE EXCHANGE FUND SELLS FOREIGN CURRENCY FOR

HONG KONG DOLLARS; OR

(B)

THE EXCHANGE FUND BORROWS HONG KONG DOLLARS IN THE INTERBANK MARKET: OR

(C)

DEBT CERTIFICATES ARE ISSUED TO THE TREASURY AND THE BALANCE IN THE TREASURY'S ACCOUNT WITH THE EXCHANGE FUND IS INCREASED.

PRACTICAL EFFECTS OF THE NEW ACCOUNTING ARRANGEMENTS

10. UNDER THE NEW ACCOUNTING ARRANGEMENTS, THE EXCHANGE FUND WILL IN EFFECT BE THE ULTIMATE PROVIDER OF LIQUIDITY TO THE INTERBANK MARKET. IT WILL BE CAPABLE OF INFLUENCING MUCH MORE EFFECTIVELY THE AVAILABILITY AND THE PRICE OF MONEY IN THE INTERBANK MARKET AND IN A MUCH BETTER POSITION TO MAINTAIN EXCHANGE RATE STABILITY WITHIN THE FRAMEWORK OF THE LINKED EXCHANGE RATE SYSTEM.

11. THE NEW ACCOUNTING ARRANGEMENTS WILL HAVE NO EFFECT ON THE DAY TO DAY OPERATION OF LICENSED BANKS IN HONG KONG, OTHER THAN HSBC. THOSE WHICH HAVE HAD, OR ARE LIKELY TO HAVE, DEALINGS WITH THE EXCHANGE FUND SHOULD, HOWEVER, BE AWARE THAT, IN ADDITION TO THE ESTABLISHED PRACTICE FOR EFFECTING HONG KONG DOLLAR SETTLEMENTS WITH THE EXCHANGE FUND AS A CUSTOMER, THE EXCHANGE FUND MAY CHOOSE TO EFFECT SETTLEMENT THROUGH REQUESTING HSBC TO CREDIT OR DEBIT, AS THE CASE MAY BE, THEIR CLEARING ACCOUNTS MAINTAINED AT HSBC. THE EXCHANGE FUND WILL AT THE SAME TIME CREDIT OR DEBIT THE ACCOUNT AS APPROPRIATE.

/12.

THUS WHEN

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