CONFIDENTAL
7. In summary, at the of the day the bank wants to get its money back; in the event of default the bank will either take back the sterling deposit plus any margin for exchange losses or it will require a external guarantee of payment. In the former case the HMOCS sterling safeguard is lost, whether or not the HMOCS actually pays the margin. In the latter case there will either have to be an insurance scheme (ruled out in earlier correspondence) or a HMG guarantee. I presume that it is impossible for the HKG to guarantee payment by the SARG other than to quote the relevant provisions of the Joint Declaration.
8.
sum.
With a pensions payout on retirement the bank will get its loan repaid. The HMOCS will also have a guaranteed sterling
However it is the movement of interest and exchange rates which will determine whether he would have been better off with this scheme than without it. If the HK$ weakens and HK$ interest rates do not rise sufficiently to compensate for the depreciation he profits from the scheme and safeguards the current sterling value (of the NPV of the pensions payment).
9. For your draft letter I would suggest;
a)
How workable would the scheme be with an external guarantee of payment in HK$ in the event of default? Would the margin still be necessary? HMOCS would then be presented with the option of a guaranteed sterling sum five years before retirement (in the scheme, with external guarantee) or a guaranteed HK$ sum at retirement (out of the scheme, with external guarantee).
10.
On the other options which were rejected in Hong Kong tel no 1935 we could get further clarification:
under what conditions would the bank purchase a HK$ five- year receivable now and in future years up to 1997?
we realise the forward cover. market for HK$ is shallow. What terms would the bank offer for forward cover of one year, two years and beyond. What amount of funds could the market be expected to take for each duration?
Chiffr
CE Lane
Economic Advisers
22 September 1992
cc Mr Fish, 00A
CONFIDENTIAL
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