· 33 ·
if the rate of return of fiscal reserves deposited with the Exchange Fund given in the answer to (a) is different from the rate of return of the Exchange Fund itself in the corresponding periods, what are the reasons for the differences?
The amount of fiscal reserves deposited with the Exchange Fund, the amount of interest earned and the rate of return in each of the past three years are set out in the following table:
Year*
Fiscal reserves placed with the Exchange Fund at the end of the year
Interest
earned
Rate
return
HK$million
HK$Million (per annum)
1993
1994
1995
115,683
131.240
125,916
3,845
3.63%
5,330
4.32%
7,436
5.78%
The rate of return is the percentage calculated by dividing the interest earned in the year by the average fiscal reserves placed during the year, i.e. opening balance plus closing balance divided by two.
The yields on the placement of the fiscal reserves with the Exchange Fund are determined by reference to the corresponding yields of Exchange Fund Bills (for placements not exceeding 12 months) and U.S. Treasury Notes (for placements over 12 months). Investment of the fiscal reserves is guided by the following principles:
(i)
(ii)
(iii)
the Government's fiscal reserves should, as far as possible, be made immune from exchange rate and other risks;
the availability of funds to enable the Government to effect timely payment must not be placed in jeopardy; and
within these constraints, the Government should through the Exchange Fund seek to obtain the best possible yield on its investment.