Explain how the automatic adjustment mechanism

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1. The following is a news extracted from an article published in Bloomberg dated 12 June, 2019.

"The Hong Kong dollar rallied as much as 0.12% to HK$7.8270 per greenback, its strongest since late December. Liquidity has been tightening in the city in recent days, with the one-month interbank borrowing cost jumping to the highest level in more than a decade Wednesday."

a. Explain how the automatic adjustment mechanism under currency broad system is going to work to maintain the linked exchange rate.

b. Briefly discuss the economic costs of the linked exchange rate system adopted by Hong Kong

c. Interest rate in Hong Kong has been staying at a low level for a long time, fueling the overheated property market. People worry that a collapse of housing market can have a huge impact on the stability of the banking system and the public finance in Hong Kong. Explain.

Reference no: EM132417164

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