The foreign exchange market
3.16
The exchange rate of the Hong Kong dollar against the US dollar was generally stable, and Hong Kong dollar interest rates were close to US dollar interest rates. Except for a short period in late April when the large demand for Hong Kong dollars arising from the floatation of the Cathay Pacific shares drove the exchange rate to levels below HK$7.77 per US dollar, the exchange rate of the Hong Kong dollar moved within a narrow range around the linked rate of HK$7.80 per US
dollar. At the end of June, it stood at HK$7.8095.
3.17
The value of the Hong Kong dollar against other foreign currencies, however, was affected by the changes in the value of the US dollar in the foreign exchange market. Dur ing
the first half of 1986, the US dollar followed
generally a downtrend against many major currencies. Largely reflecting this, the effective exchange rate index of the Hong Kong dollar fell gradually from 70.6 at the end of 1985 to a low of 65.0 in early May, before closing at 65.4 at the end of
June.
The securities and gold markets
3.18
The opening of the Unified Stock Exchange on 2 April brought computer-assisted floor trading into the local stock
market. More comprehensive regulatory requirements were also introduced to improve investor protection.
3.19
Trading on the stock market was quite active. The total turnover for the first half of this year, at $36,481 million, was 12% higher than in the previous six months. Continuing the rising trend in 1985, the Hang Seng Index reached a high of 1 827 on 8 January before falling to 1 560
in mid-March. The falling US dollar, which dragged down the
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