CONFIDENTIAL
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14.
The Exchange Fund contributed $1 billion of the first standby facility of $2 billion on a last in first out basis. The facility may be drawn or redrawn at any time up to 31 October 1989. The Exchange Fund also contributed $1 billion to the second standby facility of $2 billion. This second facility is available only after the first facility has been fully drawn, and repayments take place after the first facility has been fully repaid. Drawings and repayments are to be made on a pro-rata basis. The facility may be drawn, or redrawn at any time up to 30 April 1988. As at the end of 1987, the Fund's contribution of $1 billion to the first facility was fully drawn, but $113 million has since been repaid. No
drawings have been made on the second facility.
EXCHANGE MARKET INTERVENTION
15.
Encouraged by the continued weakness of the US dollar, there was substantial speculative pressure on the exchange rate at the beginning of the year. The volume of exchange market intervention to stabilise the exchange value of the Hong Kong dollar was larger than usual. The Exchange Fund operated in both the spot and forward markets. In total, US$1,294.5 million was purchased for settlement in the first half of the year. As the speculative pressure subsided, the Exchange Fund was able to return a large proportion of the US dollars purchased to the market. As a result, a total of US$758 million was sold for settlement in the first half
of the year and a net total of US$156 million was sold in the third
quarter. As the US trade and budget deficit problems persisted, upward pressure on the exchange rate of the HK dollar against the US
dollar resurfaced towards the end of the year and a net total of US$717 million was purchased in support operations. Over 1987, US$1,642 million was sold at an average selling price of HK$7.7965 to US$1 and US$2739.5 million was purchased at an average purchase price of HK$7.7492 to US$1. Overall, these transactions resulted in
a profit to the Exchange Fund of HK$133.33 million.
CONFIDENTIAL
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