FINANCIAL AND MONETARY AFFAIRS
money market is mainly for short-term money with maturities ranging from overnight to 12 months, for both Hong Kong dollars and US dollars. The traditional lenders of Hong Kong dollars in the market tend to be the locally-incorporated banks, while the major borrowers are those foreign banks without a strong Hong Kong dollar deposit base. As an indication of the size of the market, at the end of 1993, Hong Kong dollar interbank liabilities accounted for 30 per cent of the total Hong Kong dollar liabilities of the banking sector and foreign currency interbank liabilities accounted for 76 per cent of total foreign currency liabilities of the banking sector.
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The launch of the Exchange Fund Bills programme in March 1990 has invigorated the local capital markets. Commencing with the weekly issue of 91-day bills, the programme was expanded to include fortnightly issues of 182-day bills in October 1990 and issues of 364-day bills every four weeks in February 1991. The bills are issued in paperless form for the account of the Exchange Fund and are used as a monetary market instrument. They are available in minimum denominations of $500,000 and are issued on a discount basis by tenders which are open to recognised dealers selected from institutions authorised under the Banking Ordinance. To promote secondary market activity, 28 market makers and 102 recognised dealers had been appointed by the end of 1993. The market makers are obliged to quote two-way yields for the bills during normal money market trading hours. At the end of the year, outstanding issues of 91-day, 182-day and 364-day bills amounted to $15.6 billion, $6.2 billion and $4.4 billion, respectively.
Following the establishment of the Hong Kong Monetary Authority (HKMA) on April 1, 1993, the two-year Exchange Fund Notes were first issued in May. They will phase out outstanding two-year government bonds by early 1995. The notes' proceeds are credited to the Exchange Fund, instead of the Capital Works Reserve Fund as in the case of government bonds. To help further develop Hong Kong's debt market, the HKMA launched in October the first quarterly issue of three-year Exchange Fund Notes. This has provided a reliable benchmark for three-year money. The outstanding Exchange Fund Notes and government bonds amounted to $5.4 billion at the year's end. As with the Exchange Fund Bills programme, both recognised dealers and market makers have been appointed under the Exchange Fund Notes programme. The notes are available in minimum denominations of $50,000. They are similarly issued in paperless form through tenders.
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The local capital markets are an important source of finance for corporate borrowers. The two main types of negotiable debt instruments traded in the market are certificates of deposit issued by authorised institutions and commercial paper issued by other organ- isations and companies. Although the majority of issuers are locally-based institutions, a number of non-resident institutions have also come in to tap the local capital markets in recent years. Among the multilateral agencies active in this area in 1993 was the International Finance Corporation (IFC), which issued Hong Kong dollar bonds of $500 million in February. The Asian Development Bank (ADB) issued 30 billion Yen worth of Dragon-yen bonds in March, which were placed simultaneously in Hong Kong, Singapore and Taipei. In May, the Nordic Investment Bank (NIB) also issued US$250 million five-year Dragon bonds which were placed in Hong Kong, London and Singapore. In August and September, the IFC launched two further Hong Kong dollar bond issues of $750 million and $500 million, respectively. In September, the ADB launched its second Hong Kong dollar bonds programme to raise $1 billion. In November, the NIB launched
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