ENG-1998 — Page 547

APPENDICES

APPENDIX 19

(Chapter 5: Financial and Monetary Affairs) Exchange Fund Balance Sheet

$ Million

As at end of year

1994

1995

1996

1997

6/1998#

Assets

Foreign Currency Assets

381,233

428,547

493,802

588,475

608,923

Hong Kong Dollar Assets (1)

24,617

32,187

40,715

48,198

47,398

405,850

460,734

534,517

636,673

656,321

Liabilities

Certificates of Indebtedness (2)

74,301

77,600

82,480

87,015

84,675

Fiscal Reserves Account (3)

131,240

125,916

145,898

237,629

245,393

Coins in Circulation

3,372

3,597

4,164

5,399

5,648

Exchange Fund Bills and Notes

46,140

53,125

83,509

89,338

87,758

Other Liabilities (4)

22,815

38,600

45,130

26,770

30,369

Balance of Banking System (5)

2,208

1,762

474

296

497

280,076

300,600

361,655

446,447

454,340

Accumulated Surplus

125,774

160,134

172,862

190,226

201,981

Notes: (1) The Hong Kong Dollar Assets include the following accounts:

(a) Investments

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 foregin 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

Financial assets and liabilities which are traded in an active market are valued in the accounts at market value at the balance sheet date. Fixed deposits, certificates of deposit, interest-bearing Fiscal Reserves Account, placements by other statutory bodies and other borrowings are valued according to a price matrix of discounted cash flows using year end interest rates for discounting. The consequential change in value of the asset or liability is reflected in the carrying value of the relevant asset or liability in the Balance Sheet except in the case of balances due to the interest-bearing Fiscal Reserves Account which are stated in the Balance Sheet at the original amounts with the revaluation differences included in other liabilities.

(e) Translation of foreign currency assets and liabilities

Assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. Exchange gains and losses on foreign currency assets and liabilities are included in the Income and Expenditure account. Certificates of Indebtedness which are denominated in Hong Kong dollars but are issued and redeemed in US dollars at the linked exchange rate of US$1=$7.80 are stated in the accounts at their Hong Kong dollar face value. At the balance sheet date the difference between their Hong Kong dollar face value and the market value of the US dollars required for their redemption is included in other assets.

(2) 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-$7.80.

(3) These represent balances due to the Fiscal Reserves Account by the Exchange Fund. Prior to April 1, 1998, these accounts bear interest in market rates. Commencing with April 1, 1998, returns on a majority of these accounts are linked to the performance of the Exchange Fund while the remainder continue to bear interest in market rates.

(4) Other liabilities comprise expenses accrued at the year end, which include interest payable on Exchange Fund Notes and on the balances due to the Fiscal Reserves Account, and the revaluation differences of the balances due to the interest-bearing Fiscal Reserves Account. (5) Under the interbank payment system based on Real Time Gross Settlement principles, all licensed banks maintain a clearing account with the Monetary Authority for the account of the Exchange Fund. The aggregate balance in these accounts represents the total level of liquidity in the interbank market.

#

Unaudited figures. Figures are as at end June 1998.

Source: Hong Kong Monetary Authority.

(Enquiry Telephone No.: 2878 8222)

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