The situation is like this:
Premise: Assume that the Hong Kong dollar is overvalued against the US dollar, the potential force to sell the Hong Kong dollar is relatively large, and the bet is that Hong Kong’s foreign exchange reserves are insufficient
< p>Assumption: The current US dollar: Hong Kong dollar = 1:10, and it is estimated that it can reach 1:20Operation:
(1) Reserve a small amount of Hong Kong dollars, cost X;
(2) Borrowing a large amount of Hong Kong dollars in the inter-bank market, the borrowing cost is Y;
(3) Selling a large amount of Hong Kong dollars in exchange for US dollars, the transaction cost is Z;
(4 ) Due to the abnormal amplification of market selling orders and insufficient selling capacity, the exchange rate of the Hong Kong dollar fell in the foreign exchange market, assuming it temporarily fell to 1:12
(5) In order to maintain the Hong Kong linked exchange rate mechanism, the US dollar: Hong Kong dollar The exchange rate of 1:10 is stable. The Hong Kong Monetary Authority is forced to use US dollar foreign exchange reserves to buy Hong Kong dollars in large quantities. The foreign exchange reserves decline and the exchange rate returns to 1:10;
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Now comes the question,
(A) Hong Kong Compared with Soros’s Hong Kong dollar foreign exchange reserves, who has more foreign exchange reserves? If Soros had more Hong Kong dollars, Hong Kong would be in danger;
(B) How do other foreign exchange speculators and retail investors view this issue? Should they follow Soros and sell Hong Kong dollars for US dollars, or should they follow the Hong Kong Monetary Authority and sell them? How about exchanging US dollars for Hong Kong dollars? ----This involves an assessment of the strength of both parties, and a question of whether to be bearish or bullish on Hong Kong's real economy.
The actual situation is likely to be that Soros has a lot of money, foreign exchange speculators and retail investors follow Soros's lead in selling Hong Kong dollars, Hong Kong's foreign exchange reserves are exhausted, there are still Hong Kong dollars being sold, and the linked exchange rate mechanism is destroyed .
If Soros succeeds, the outcome may be:
(6.1) Hong Kong is forced to abandon the linked exchange rate, the Hong Kong dollar depreciates, and the US dollar: Hong Kong dollar exchange rate becomes 1:20
(6.2) When Soros sells Hong Kong dollars, the exchange rate is 1:12. At this time, he can use the US dollars exchanged for selling Hong Kong dollars to buy back Hong Kong dollars, and use Hong Kong dollars to repay debts in the interbank market. In this way, every 12 One Hong Kong dollar -> 1 US dollar -> 20 Hong Kong dollars, gross profit 20-12 = 8 Hong Kong dollars, net profit = 8-X-Y-Z, if the value is positive, Soros will make money!
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< p>However, the Hong Kong Monetary Authority took action.(7.1) asked the central government for help and obtained a large temporary US dollar foreign exchange loan. So Soros did not have enough money, and the Hong Kong dollar exchange rate stabilized at 1:10. No more!
(7.2) Significantly increase the borrowing cost Y, the cost of capital increases significantly, and the cost continues to increase geometrically rapidly based on the number of days (time is also a very high cost), Soros’s net profit expectation becomes A large negative value;
(7.3) Foreign exchange speculators and retail investors also changed their stance, either buying Hong Kong dollars quickly or giving up selling Hong Kong dollars. Soros’s short-selling operation failed!
(7.4) Soros gave up the attack and spent the cost X+Y+Z, and sold the Hong Kong dollar at 1:12, and was forced to buy back the Hong Kong dollar at 1:10 to repay the debt, resulting in a loss of 20%+X+ Y+Z leaves the field.
(7.5) Hong Kong successfully defended its linked exchange rate and returned the mainland’s foreign exchange borrowings (there should be some interest, right?).
That’s all.