FINANCIAL AND MONETARY AFFAIRS
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moved within a rather narrow range of 7.75 per cent and 10.06 per cent. Besides, some authorised institutions appeared to have a preference for the more conventional hedging instruments such as forward rate agreement.
Trading in commodity futures remained moderate in 1990. Total turnover in soyabeans, sugar and gold futures amounted to 105 993 lots (30 000 kg each), 109 145 lots (112 000 lb each) and 992 lots (100 troy ounces each) respectively.
The prices of loco-London gold eased from US$403 per troy ounce at the end of 1989 to a low of US$347 in mid-June. Due to the Gulf crisis the price of gold was driven up to a high of US$406 in late September. At the end of the year, it closed at US$392 per troy ounce. The gold price on the Chinese Gold and Silver Exchange Society showed similar movements and fluctuated between $3,234 and $3,902 per tael during the year. Turnover on the latter exchange totalled 47 million taels in 1990, compared with 51 million taels in 1989.
The number of unit trusts and mutual funds approved by the Securities and Futures Commission rose from 787 at end-1989 to 936 at end-1990. Enhanced efficiency in processing applications was a positive factor in encouraging international financial institutions to set up funds in Hong Kong. Along with the increase in number, there was a diversification of funds into different investment products and into different geographical markets. An interesting example was a new fund for investing in East Europe.
In line with the move by the international community to impose a freeze on certain assets - of Kuwait and Iraq, the Hong Kong (Control of Gold, Securities, Payments and Credits: Kuwait and Republic of Iraq) Order 1990 was made on August 6. Except with permission granted by or on behalf of the Financial Secretary, no direction given by or on behalf of the governments or residents of Iraq or Kuwait may be carried out insofar as the direction requires a person in Hong Kong to make any payment or to part with any gold or securities. In general, this freeze has not created much disturbance to the operation of financial institutions in Hong Kong.
Monetary Policy
Unlike most major economies, Hong Kong has no central bank. Most of the functions which might be performed by one - such as prudential supervision of financial institutions, managing official foreign exchange reserves, undertaking certain types of market opera- tions, holding the backing to the note issue and providing central banking services to the government - are carried out by different government offices within the Monetary Affairs Branch of the Government Secretariat.
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There is a linked exchange-rate system, which was introduced on October 17, 1983, after a period of much instability in the exchange rate of the Hong Kong dollar. In the system, certificates of indebtedness (CIs) issued by the Exchange Fund, which the two note-issuing banks are required to hold as cover for the issue of Hong Kong dollar notes, are issued and redeemed against payments in US dollars at a fixed exchange rate of HK$7.80 US$1. In practice, therefore, any increase in note circulation is matched by a US dollar payment to the Exchange Fund, and any decrease in note circulation is matched by a US dollar payment from the Exchange Fund. The two note-issuing banks in turn extend this fixed exchange rate to their note transactions with all other banks in Hong Kong. In the foreign exchange market, the exchange rate of the Hong Kong dollar continues to be determined by forces of supply and demand. However, the interplay of arbitrage and competition