CHAPTER 6
FINANCIAL AND MONETARY AFFAIRS
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HONG KONG is an international financial centre which comprises an integrated network of financial institutions and markets. The government's objective is to further the development of the financial markets by providing an appropriate legal, regulatory, infrastructural and administrative framework to, inter alia, provide a level playing field for all market participants, maintain the stability of the financial and monetary systems and enable Hong Kong to compete effectively with other major financial centres.
Some 520 authorised institutions and local representative offices of banks from more than 40 countries conduct business in Hong Kong. The banking sector's external assets are among the highest in the world. Hong Kong was the fifth-largest centre for foreign exchange trading according to the 1995 triennial global survey conducted by the Bank for International Settlements (BIS), up from sixth in 1992.
Hong Kong's stock market is one of the world's largest in terms of market capitalisation. The market was buoyed by continued economic growth in Hong Kong and China but was hit by the Asian currency turmoil in the second half of the year. The Hang Seng Index closed at 10 723 points, or about 20 per cent lower than in 1996, which is moderate as compared to neighbouring markets.
On the monetary front, the Hong Kong dollar remained very stable despite the turmoil in the Asian currency markets in the second half of the year, moving within a narrow range of $7.725-7.751 to US$1. However, reflecting the Asian risk premium due to the uncertainties in the external environment, the Hong Kong dollar interest rates firmed to levels considerably higher than their US dollar counterparts in the last quarter of the year.
The World Bank/International Monetary Fund Annual Meetings were held from September 23 to 25. With a record 19 500 participants, they provided a valuable opportunity for Hong Kong to showcase its continued prosperity and stability under the 'One Country, Two Systems' principle.
Hong Kong as an International Financial Centre
Hong Kong's favourable geographical position, bridging the time gap between North America and Europe, its strong links with China and other economies in South-East Asia and excellent communications with the rest of the world have helped Hong Kong to develop into an important international financial centre. The absence of any restrictions on capital flows into and out of Hong Kong is another important factor.