TNAG-1483-FCO40-2037-Economic-situation-in-Hong-Kong-1986 — Page 296

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- an unwieldly path of arbitrage through cash which probably

led to wider variations away from 7.80 than strictly necessary;

- the difficulty of successful arbitrage implying losses either

for the net issuers of notes (HKB and Standard Chartered) or the main net receiver and retirer of notes (Bank of China);

- limits on interest rate flexibility which had led to the need

for direct intervention.

CONFIDENTIAL