And I believe that the best way of managing risks is for those concerned, not just the authorities responsible for the maintenance of systemic monetary and financial stability but more importantly also those actually assuming risks, whether as investors or as financial intermediaries, to be alert to them, and to understand that they may have peculiar characteristics. Then there are importantly those innocent parties in society, who are often hard-pressed to make ends meet or struggling to acquire a dwelling place, who could be further disadvantaged if there were monetary and financial instability, should the risks materialise to the extent of causing a shock of systemic dimension. Sub-prime crisis The FIRST such issue is the sub-prime crisis in the United States. The use of the word "crisis" is not an exaggeration on my part, notwithstanding the absence so far of anything approaching a crisis in Hong Kong. It is the word that is increasingly being used in the developed markets and in international finance when talking about the current difficulties in the United States and Europe that originated from sub-prime mortgages. At the risk of oversimplifying something that is really quite complex, let me make a few observations that might help understand what is going on. First, sub-prime mortgages are really mortgages extended to those who are, to put it bluntly and simply, not credit worthy. And as mortgages are assets on the books of the lenders, subprime mortgages are really sub-standard financial assets.
It would probably not relieve pressures for currency appreciation, rising inflation and buoyant asset prices. Seventh, on the so-called reverse double play: the scope is limited. The reverse double play aims at profiting from a long position in Hong Kong stocks by engineering a capital inflow large enough to trigger passive exchange market intervention on our part, which would push interest rates to very low levels and asset prices higher. But interest rate adjustments when the exchange rate hits the strong side of the band are bounded by the floor of 0%, while they might be a lot more dramatic at the weak side, and the sensitivity of stock prices to these different adjustments differs. Herd reaction, which is what most speculative plays aim at, is a lot easier to instigate through the fear factor, when interest rates rocket up, risking a stampede to exit from the market, but a lot more difficult through the greed factor, when interest rates fall, and the rush to buy does not necessarily materialise. Conclusion I hope these answers are clear and the high degree of confidence in and credibility of the linked exchange rate system built up over the past quarter of a century is sustained. This would obviate the need for the type of interest rate adjustments seen earlier in the month and dampen volatility in Hong Kong dollar interest rates around those of the US dollar. Indeed, monetary and financial stability is dependent to a large extent on confidence in and credibility of monetary and financial policies.