CONFUENITAL.
4. First, from the dollars. side of dollar
rates.
--2
the Exchange Fund can borrow Hong Kong dollacs interbank market to fund the purchases of US When the Hong Kong dollar is on the stronger 7.80, chances ace, or by design, Hong Kong interest rates would be below US dollar interest The effect of this operation on the balance the Exchange Fund will be an increase in interest earning US dollar assets, matched by increase in Hong Kong dollar liabilities costing a lower interest. Again the size of the Exchange Fund actually increases as a result.
sheet of
5.
Kong
Secondly, dollars
an
the Exchange Fund can create the Hong needed, through the Accounting Arrangements, by simply crediting the clearing account of the bank from which the Exchange Fund has bought US dollars the equivalent amount of Hong Kong dollars. The effect of this on the balance sheet of the Exchange Fund will be an increase in interest free Hong Kong dollar Liabilities and interest earning US dollar assets. In other words, the size of the Exchange Fund actually increases as a result. (This also has the effect of increasing the level of interbank liquidity, thereby depressing Hong Kong dollar interest rates in a manner consistent with the aim of preventing the Hong Kong dollar exchange rate from strengthening.)
6.
is
Thirdly, the transaction for buying US dollars can be booked forward" to a day when the Hong Kong dollar cash flow position of the Exchange Fund adequate for settling that transaction. The forward exchange rate will normally be even more favourable than the spot rate. The spot position of the balance sheet of the Exchange
will therefore remain unchanged, On the settlement date of the forward transaction, however, there will be a shift of Hong Kong dollar assets to US dollar assets; but the overall size of the Exchange Fund will still be unaffected.
7.
The
US dollar cash flow position of the Exchange Fund is always maintained at a comfortably high level to ensure that there is adequate resources for supporting the exchange rate when it is weaker than course the choice of other The Exchange Fund has so far of US dollars for intervention Direct intervention in the foreign exchange Hong Kong dollar from weakening
7.80.
There is of intervention strategies. not found itself short
purposes.
market to prevent
also will not lead to a depletion in the overall size of the Exchange Fund.
CONFIDENTIAL
Pq
No comments yet.
Private notes are available after approval.