THE Hongkong Futures Exchange is considering a foreign exchange contract with options as its next product. Exchange chief executive Gary Knight said yesterday the exchange was studying its alternatives - probably a spot contract - which would be much smaller than the US$5 million contracts available on the interbank market. The contract would allow speculators who use leveraged deals with the small foreign exchange dealers outside regulation to trade a publicly quoted contract with reduced risk of default. Mr Knight said the exchange was looking at offering the contracts on the usual traded currencies, although it was also considering currencies which had special links to Hongkong, such as the Australian and Canadian dollars. He emphasised that the exchange still faced hurdles. As well as looking at demand, it would study the economic value of the contract and the legislation regulating non-bank foreign exchange dealers being considered by Legco. The exchange considered offering currency contracts in 1991, but did not proceed. Futures exchange chairman Leong Ka-chai had earlier told the Legislative Council finance panel that the exchange's work with the Nanjing Petroleum Exchange ''by no means dilutes our commitment to further develop and provide the best tools for the Hongkong markets''. He said in other markets, only one in five contracts launched would typically take off. He added that the contract on the Hongkong Interbank Offered Rate, which was launched in 1990 and is now untraded, could be revived. One factor was that ''the debt market here is getting more mature''. Mr Leong said the exchange was looking at a screen-based system for the currency contracts - a contrast to the open outcry it uses for all other contracts. This is because currency contracts usually are traded for much longer hours than other contracts - sometimes around the clock. Legco members were presented with papers showing that the exchange estimates its financial position will continue to strengthen, with last year's profit of $6.5 million, the first since the 1987 crash, projected to rise past $25 million this year. They questioned both futures exchange executives on the 1987 crash, when the futures exchange was closed for four days and had to be rescued with a $1.8 billion lifeboat fund, now being wound up. The Legco member representing the securities industry, Chim Pui-chung, startled some members by comparing the imposition of the lifeboat levy - 0.03 per cent for shares and $30 per futures contract - with the Japanese occupation. ''A lot of members of the public have had to pay for the inadequacy of officials,'' he claimed. The panel decided to speed the Foreign Exchange Bill into law by not setting up a committee to examine it.