ENG-1993 — Page 523

APPENDICES

APPENDIX 14A

(Chapter 6: Financial and Monetary Affairs)

EXCHANGE FUND BALANCE SHEET

$ Million

Note

1987

1988

As at end of:

1989

1990

1991

1992

ASSETS

Foreign Currency Assets Hong Kong Dollar Assets

113,089

1

5,746

127,089 5,962

149,152

192,323

9,625

3,874

225,333 10,788

274,948

12,546

118,835

133,051

158,777

י

196,197

236,121

287,494

LIABILITIES

Certificates of Indebtedness Transfers of Fiscal Reserves

Coins in Circulation

NM

2

26,831

31,731

37,191

40,791

46,410

58,130

3

32,557

38,269

52,546

63,226

69,802

96,145

1,470

1,890

2,012

2,003

2,299

2,559

Exchange Fund Bills

6,671

13,624

19,324

Other Liabilities

Balance of Banking System

45

4,453

2,554

1,603

391

4,834

3,220

860

978

480

500

1,480

65,311

75,304

94,330

113,562

137,469

180,858

ACCUMULATED EARNINGS

53,524

57,747

64,447

82,635

98,652

106,636

NOTES ON THE ACCOUNTS

1.

(a) Investments

2.

3.

4.

5.

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.

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.

Other liabilities comprise expenses accrued at the year end, in the main interest due on fiscal reserve transfers, contingency reserves for bank rescue operations and any other borrowings.

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.

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