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As we have mentioned before, our telnos 1144 and 1263, the Treasury have not (yet) ruled out the option that HMG might guarantee against the risk of default.
4.
In asking HKB to quantify the known costs, could you please also ask them whether they would contemplate such a scheme running over a longer, say 10 year, period and if so on what terms.
5.
We should also be grateful if you would ask HKB to comment in writing on the other two possibilities raised by Margolis - the proposal for a purchase of receivables at a discounted rate and the option of an exchange rate hedging option. We appreciate that you consider these to be
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non-viable paras 5 and 6 of your telno 1935, but would be grateful if you would ask the bank under what conditions they would purchase a HK$ 5 year or 10 year receivable now, and in future years up to 1997. If HKB say they would simply not contemplate this, so much the better. On the
question of an exchange rate hedging proposition, we realise the forward cover market for HK$ is shallow. But we would like to obtain in writing from the bank what terms it would offer for forward cover of one year, 2 years and up to
Please also ask what amount of funds could the market be expected to take for each duration.
10 years.
6.
I am sorry to have to ask you to go back yet again to Mr Gray.
I am sure you will appreciate that within Whitehall the Treasury are now in a strong position. Money is very tight and the future fiscal outlook bleak. We will need to pull out all stops to show that there is no realistic alternative to our proposal that HMG take on the (substantial) contingent liability involved.
7. I should be grateful if you could draft your letter to John Gray so that it - and Gray's reply - can be shown as they stand to the Treasury: ie please no reference to this letter!
P F Ricketts
ever
Hong Kong Department
Palur.
pri.sec.ADM
SLM
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