APPENDICES
APPENDIX 19
(Chapter 6: Financial and Monetary Affairs) Exchange Fund Balance Sheet
$ Million
Note
1991
1992
1993 *
As at end of year
1994 †
1995
1996
6/1997#
Assets
Foreign Currency Assets
225,333
Hong Kong Dollar Assets
1
10,788
274,948 12,546
335,499 12,987
381,233 24,617
428,547 32,187
493,802
523,891
40,715
44,863
236,121
287,494
348,486
405,850
460,734
534,517
568,754
Liabilities
Certificates of Indebtedness
Fiscal Reserves Account
W N
2
46,410
58,130
68,801
74,301
77,600
82,480
91,985
3
69,802
96,145
115,683
131,240
125,916
145,898
182,168
Coins in Circulation
2,299
2,559
2,604
3,372
3,597
4,164
4,564
Exchange Fund Bills and Notes
13,624
19,324
25,157
46,140
53,125@
83,509
89,338
Other Liabilities
4
4,834
3,220
7,314
22,815
38,600@
45,130
18,332
Balance of Banking System
5
5
500
1,480
1,385
2,208
1,762
474
480
137,469
180,858
220,944
280,076
300,600
361,655
386,867
98,652
106,636
127,542
125,774
160,134
172,862
181,887
Accumulated Earnings
NOTES ON THE ACCOUNTS
1.
(a) Investments
2.
3.
4.
5.
*
+
The Fund is invested in interest-bearing deposits with banks both in Hong Kong and outside Hong Kong and in a variety of financial instruments, including bonds, notes, treasury bills and US equities.
(b) Foreign currency assets distribution
A large proportion of the Fund's foreign currency assets is held in US dollars. Apart from the US dollar, the Fund also holds assets denominated in other foreign currencies, including the Australian dollar, Belgian franc, Canadian dollar, Danish krone, Deutschemark, Dutch guilder, the ECU, French franc, Japanese yen, pound sterling, Swiss franc.
(c) Location of assets
The assets are held in deposit, trustee and safe-keeping accounts with banks, central banks and custodial organizations situated in Hong Kong and other major financial centres.
(d) Valuation of assets and liabilities
In order to give a more appropriate presentation of the results and financial position of the Exchange Fund, the accounting policy with respect to the valuation of assets and liabilities has been changed in accordance with the recommendation of the International Accounting Standards Committee Exposure Draft E48. For 1992 and prior years, all assets were shown at market value, with the exception of fixed deposits, which were shown at cost. All liabilities were shown at their face amount, with the exception of Exchange Fund Bills and Notes, which were shown at discounted or amortized value. From 1993 onwards, all assets of Exchange Fund, and its liabilities in respect of Exchange Fund Bills and Notes and other borrowings, are now shown at the market value on the last day of each accounting period. The Fiscal Reserves Account is still shown at its face amount, with the difference between its market value and the face amount being included in other liabilities.
(e) Translation of foreign currency assets and liabilities
From 1994 onwards, assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the middle market rate at the close of business on the last business day of the year. Prior to that, US dollar assets and liabilities were translated into HK dollars at the linked exchange rate of US$1 = HK$7.80, Assets and liabilities in other foreign currencies were translated into HK dollars based on US dollar middle market cross rates in London at the close of business on the last business day of the accounting period.
As backing for their bank note issues, each note-issuing bank is required to hold a non-interest bearing Certificates of Indebtedness issued by the Financial Secretary. Payments for the issuance and redemption of notes against these Certificates are made in US dollars at a fixed rate of US$1 HK$7.80.
This comprises the fiscal reserves which have been transferred from the General Revenue Account, Capital Investment Fund, Loan Fund, Capital Works Reserve Fund, Civil Service Pension Reserve Fund and Disaster Relief Fund of the Government to the Exchange Fund on an interest earning basis.
Other liabilities comprise expenses accrued at the year end, in the main interest due on transfer from fiscal reserves, other borrowings, provision for contingency related to Overseas Trust Bank Limited and the difference between the market value and the face amount of the Fiscal Reserves Account (see Note 1(d)).
In accordance with the Accounting Arrangements introduced in July 1988, The Hongkong and Shanghai Banking Corporation Limited, as the Management Bank of the Clearing House of The Hong Kong Association of Banks, is required to maintain a Clearing Account with the Exchange Fund. The balance in the Account, which represents the level of liquidity in the interbank market, is determined by the Monetary Authority. The Accounting Arrangements enable the Monetary Authority to maintain exchange rate stability more effectively by influencing the level of interbank liquidity through money market operations.
Figures for 1993 shown above reflect the accounting policies adopted in 1994. Figures for 1992 and prior years have not been restated. Figures are revised based on new accounting policies adopted in 1995. The major change was the use of market rate of HK$ against US$ at the close of business while the old accounting policies were based on the conversion rate of HK$7.8 to US$1.
@ Due to change in accounting policy, accrued interests on Exchange Fund Notes, which previously aggregated with the market value of the
liability, are reclassified under 'Other Liabilities'.
Unaudited figures. Figures are as at end June 1997.
Source: Hong Kong Monetary Authority.
(Enquiry Telephone No.: 2878 1664)
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