APPENDICES
APPENDIX 16
(Chapter 6: Financial and Monetary Affairs)
EXCHANGE FUND BALANCE SHEET
Assets
Foreign Currency Assets Hong Kong Dollar Assets
Liabilities
$ Million
As at end of:
Note
1988
1989
1990
1991
1992
1993
}
1
127,089 5,962
149,152
192,323
225,333
274,948
335,421
9,625
3,874
10,788
12,546
12,973
133,051
158,777
196,197
236,121
287,494
348,394
Certificates of Indebtedness
2
31,731
37,191
40,791
46,410
58,130
68,801
Transfers of Fiscal Reserves
3
38,269
52,546
63,226
69,802
96,145
115,683
Coins in Circulation
1,890
2,012
2,003
2,299
2,559
2,604
Exchange Fund Bills and notes
6,671
13,624
19,324
25,168
Other Liabilities
4
2,554
1,603
391
4,834
3,220
7,135
Balance of Banking System
5
860
978
480
500
1,480
1,385
75,304
94,330
113,562
137,469
180,858
220,776
Accumulated Earnings
57,747
64,447
82,635
98,652
106,636
127,618
488
NOTES ON THE ACCOUNTS
1. (a) Investments
2.
The fund is invested in interest bearing deposits with banks in Hong Kong and overseas and in a variety of financial instruments, including bonds, notes and treasury bills. Only instruments which have good marketability and which are issued by or guaranteed by governments with high credit standing are acquired.
(b) Foreign currency assets distribution
A large proportion of the Fund's foreign currency assets are held in US dollars because this is the intervention currency and there is no exchange risk involved, given that the Hong Kong dollar is linked to the US dollar. Apart from the US dollar, the Fund also holds assets denominated in other major foreign currencies. They are the Canadian dollar, deutschemark, Japanese yen, pound sterling, Swiss franc, Dutch guilder, French franc and the ECU. (c) Location of assets
The assets are held in deposit, trustee and safe-keeping accounts with banks, central banks and custodial organisations situated in Hong Kong and other major financial centres.
(d) Valuation of assets
Short-term money market instruments are valued at cost. Bonds, notes and treasury bills are valued at mid-market prices as at the close of business on the last business day of each accounting period.
(e) Translation of foreign currency assets
US dollar (USD) assets are translated into Hong Kong dollars (HKD) at an exchange rate of USD 1=HKD 7.80. Assets in other foreign currencies are translated into Hong Kong dollars based on US dollar middle market cross rates in New York at the close of business on the last business day of the accounting period.
As backing for their bank note issues, the two note-issuing banks are required to hold non-interest bearing certificates of indebtedness issued by the Exchange Fund. Since 17 October 1983 these certificates have been issued to or redeemed from the two banks against payment in US dollars at a fixed rate of HKD 7.80 USD 1.00.
3. This is that proportion of the fiscal reserves which has been transferred from the General Revenue Account, Capital Investment Fund, Loan Fund and Capital
Works Reserve Fund to the Exchange Fund on an interest earning basis.
4. Other liabilities comprise expenses accrued at the year end, in the main interest due on transfers from fiscal reserve, other borrowings and provision for
contingency related to the sale of Overseas Trust Bank Limited.
5.
In accordance with the Accounting Arrangements introduced in July 1988, The Hongkong and Shanghai Banking Corporation Ltd., as the Managemnet Bank of the Clearing House of the Hong Kong Association of Banks, is required to maintain a Clearing Account with the Exchange Fund. The balance in the Account, which represents the level of liquidity in the interbank market, can only be altered by the Fund. The Accounting Arrangements enable the Fund to maintain exchange rate stability more effectively by influencing the level of interbank liquidity through money market operations.