CONFIDENTIAL
LAP bid and offer rates
14.
to
The bid and offer rates would be set at levels
appropriate to the prevailing monetary situation, having regard to interest rates for the US dollar, to which the Hong Kong dollar is firmly linked, and the interbank interest rates for the Hong Kong
the Hong Kong dollar itself. Once set, they would only be altered when there were a need
to support the exchange rate. For example, a change may be made in response to a change in the US interest rates themselves, 50 as to prevent the exchange rate from deviating from 7.80 under the influence of a significant interest rate differential between the currencies. Alternatively a change may be made to bring about a significant interest rate differential between
the two currencies So as to contain an unacceptable
deviation, for whatever reasons, in the exchange rate
from 7.80.
15.
The timing of alterations to the LAF bid and
offer rates would be as
and when the need to change
be
was identified. But this would not be brought about while LAF is open (i.e. 4 p.m. to 5 p.m.)
p.m.) to banks. Given the wide spread intended for the bid and offer rates, alterations would in practice be infrequent.
16.
The LAF bid and offer rates would in effect become the floor and the ceiling respectively for the overnight rate for the Hong Kong dollar in the interbank In order that they would not inhibit the movement of interbank interest rates needed to support
the exchange rate should sudden shocks
should sudden shocks to the monetary
market.
system cause it to deviate sharply from 7.80, the Exchange Fund reserves the right at any time to
off either the bid or the offer rate.
February 1992
Office of the Exchange Fund
CONFIDENTIAL
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P. LO
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