Zhongshi earned more than 70 million Hong Kong dollars from betting on football matches. After paying back Liao Chengde, buying a house, and donating to the Hope Project, he had very little left. He did have some money invested in the Japanese stock market, but he didn't plan to touch that money. For one, it wasn't much, and secondly, the options he held were about to reach their expiration date.
In 1985, Zhongshi used the money he earned from the currency futures market to invest in options, specifically a five hundred million US dollar option with an agreed exchange rate of 190 yen to the dollar.
Now, the yen has appreciated to a level of 140 yen to the dollar, nearly doubling in value over just two years. This rate of appreciation has left even seasoned foreign exchange traders speechless.
In fact, the appreciation of the yen is about to come to an end. In 1987, the United States will be meeting with the finance ministers of several major currency countries to discuss the rapid appreciation of the yen.
Although the yen has appreciated rapidly, the Japanese economy has not been severely affected due to the Ministry of Finance's active fiscal policies and the Bank of Japan's loose monetary policies. On the contrary, a large amount of capital has flowed into Japan, leading to a period of economic prosperity.
At the same time, due to the appreciation of the yen, Japanese companies and conglomerates have actively purchased large amounts of resources overseas, offsetting the negative effects of the yen's appreciation. As a result, Japan has surpassed the United States to become the world's largest creditor nation.
However, Zhongshi knows that this false prosperity will not last long. In two years, as the 1990s approach, Japan's stock market and real estate market will crash, leading to a prolonged economic downturn known as the "Lost Decade."
This bubble cannot last long. History has repeatedly shown, and will continue to show, that without the support of the real economy and improvements in labor efficiency, the prosperity of the virtual economy will be fleeting.
Zhongshi's option has reached its limit in terms of profit. Although the yen will reach a new high of 120 to the dollar by the end of 1987, Zhongshi cannot wait that long.
It's time to exercise this option!
...
Hong Kong, Central, Standard Chartered Bank headquarters.
Standard Chartered Bank is an old British bank, but its main business is in East Asia. It might be more accurate to say that it is a bank registered in London with operations spanning the globe. Interestingly, Standard Chartered has very little business in its home country, the United Kingdom.
Like HSBC, Standard Chartered is one of the three commercial banks designated by the Hong Kong Monetary Authority to issue currency. The other is the Chinese-owned China Bank (Hong Kong).
Due to Hong Kong's unique status, there is no central bank. Therefore, the right to issue currency is given to two British banks and one Chinese bank. When these banks issue Hong Kong dollars, they must exchange US dollars at a rate of 7.80 HKD to 1 USD with the Monetary Authority before they can print money. This ensures that the Hong Kong dollar's exchange rate remains stable.
This linked exchange rate system is almost a fixed exchange rate system. However, as a model of a free economy, Hong Kong has two parallel foreign exchange markets: the foreign exchange fund and the interbank spot foreign exchange market formed by the issuance of currency. In the future, financial tycoons will use this relationship to attack Hong Kong's exchange rate system.
On this day, Liao Chengde met with the head of foreign exchange at Standard Chartered Bank in Hong Kong. After both parties were seated, the blue-eyed, high-nosed foreigner was surprised to see that the young man accompanying Liao Chengde was sitting in the second seat.
The head of foreign exchange, named Ryan, had worked at Standard Chartered Hong Kong for twenty years and was well-versed in Chinese customs. He could speak fluent Mandarin and Cantonese and had a deep understanding of Chinese culture.
"Mr. Liao, what can I do for you today?" Ryan asked, though he was somewhat surprised, he maintained his composure, a trait he had learned from Chinese culture.
"Well, Mr. Cooper, I have some yen that I would like to sell to your bank," Liao Chengde said, rubbing his hands together, a bit uncertain. Although he didn't understand why Zhongshi had instructed him to do this, he followed the order.
"Oh, really? How much yen do you have?" Ryan was disappointed. He had initially thought it was something important, but when he heard it was just a foreign exchange transaction, he shook his head. In the foreign exchange market, transactions are usually conducted by central banks, large commercial banks, and financial institutions. Personal transactions are usually small and don't require his attention.
"About 100 billion yen," Zhong Yi, who had been observing from the side, was a bit displeased. He had noticed the disappointment in the well-dressed gentleman's eyes, which made him dissatisfied with the bank's service.
"What? 100 billion yen?" Ryan was shocked. He had thought it was only a few billion or tens of billions of yen. Before the meeting, he had investigated Liao Chengde's wealth and knew that the rapidly rising tycoon had recently aligned with Li Ka-shing, but even so, he didn't expect this much.
100 billion yen is equivalent to over 700 million US dollars, or 5.5 billion Hong Kong dollars. In an instant, Ryan calculated the amount in his head.
With the yen appreciating so rapidly, the foreign exchange department he managed had made substantial profits over the past two years. After HSBC's profits fell last year, Standard Chartered was ambitious and wanted to outperform its old rival this year. The profit targets for all departments were significantly higher than the previous year.
With this amount of money, a profit of a few hundred million Hong Kong dollars could be made with just a few transactions in the foreign exchange market. Ryan understood the situation.
"Mr. Liao, I will buy all of your yen at a preferential price, yes, all of it!" Ryan said firmly.
"Exactly as Zhongshi predicted!" Liao Chengde thought to himself. Ryan's reaction was exactly what Zhongshi had anticipated.
Although the daily transactions in the foreign exchange market are measured in billions, a bank like Standard Chartered, registered in Europe and primarily operating in Hong Kong, couldn't compare to American or Japanese banks. In the international financial market, especially in the American financial market, banks like Standard Chartered and HSBC were still considered small players.
Bankers have a characteristic of being particularly greedy for profit. If possible, they would even try to extract a piece of meat from a mosquito's leg.
"What price are you willing to offer?" Zhong Yi asked, leaning his head to one side with interest.
Ryan quickly stood up, extended his right hand politely, and smiled warmly, "Ryan Cooper, may I ask the name of this gentleman?" He had initially thought Zhong Yi was Liao Chengde's subordinate and hadn't paid much attention, but after a few words, he realized that the young man was the main character.
"Zhong Yi," the young man shook his hand slightly, with a half-smile on his face.
"Zhong Yi? Zhong Yi? What a nice name, I like it," Ryan's smile grew wider, taking the opportunity to flatter him. In Cantonese, "Zhong Yi" means "like," a clever double entendre.
"I will buy all of it at 139 yen to the dollar. How does that sound?" After they were seated, Ryan said eagerly.
"139? Mr. Cooper, to be honest, before coming to Standard Chartered, we just heard a quote from the neighboring bank (HSBC), and their offer was much more attractive!" Zhong Yi shook his head, somewhat dissatisfied.
"Oh? What was their offer?" Ryan frowned, a sense of unease rising in his mind. The situation seemed more complicated than he had imagined.
"That's a business secret between us and them. It's not appropriate for me to disclose it, Mr. Cooper," Zhong Yi laughed, changing the subject.
"I apologize for my rudeness. Could you please wait a moment while I consult with my superiors to make a satisfactory offer?" Ryan knew that raising the offer further would exceed his authority.
"Of course, but I must remind you, Mr. Cooper, based on our research, the yen may rise to 120 to the dollar at most," Zhong Yi shrugged, adopting a laissez-faire attitude.
Ryan nodded and closed the door to the meeting room.
Ten minutes later, Ryan returned with the latest foreign exchange report. He handed the paper to Zhong Yi and said solemnly, "After consultation, our highest offer is 136, and we cannot go any lower. You know, the foreign exchange market is very risky, and we are not optimistic about the yen's appreciation. We believe the turning point is coming soon."
"Deal!"
Zhong Yi glanced at the report. The yen-to-dollar exchange rate had risen to 139, the latest market quote. HSBC's offer was only 139, and they had clearly stated that it was their bottom line. In that case, the profit would go to their competitor.
"May our cooperation be pleasant!" Ryan extended his hand, shaking Zhong Yi's firmly. This time, Zhong Yi was genuinely pleased and shook his hand with enthusiasm.
"Oh, by the way, I almost forgot to mention, we also need a loan of 500 million US dollars before this!" Zhong Yi scratched his head, looking apologetic.
"..." Ryan was momentarily stunned, not understanding why Zhong Yi said this. A moment later, he came to his senses and exclaimed, "Options, it's options!"
"You're a professional, very smart!" Zhong Yi gave a thumbs up, praising him.
"Time limit? Agreed price?" Ryan didn't even acknowledge the praise, asking rapidly, his breathing becoming more urgent. He finally understood where the 100 billion yen came from.
"Two years, 190!" Zhong Yi's words made Ryan gasp in shock!
(Recently, a very amusing incident occurred in the domestic bond market. A "chief editor" made a super low-level mistake in bond yields, causing ridicule throughout the financial industry. For more details, see "A Debate Sparked by Dagong's Downgrade of the US Rating," which can be found online. Interested readers can ask me in the book review section below.)