ENG-1999 — Page 565

APPENDICES

APPENDIX 19

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

Assets (1)

Foreign Currency Assets

Hong Kong Dollar Assets

$ Million

As at end of year

1995

1996

1997

1998

1999

428.547

493,802

588,475

701,239

755,115

32,187

40,715

48.198

211,036

247,641

460,734

534,517

636,673

912,275

1,002,756

Liabilities (1)

Certificates of Indebtedness

(2)

77,600

82,480

87,015

86,465

118,195

Coins in circulation

3,597

4,164

5.399

5,778

5,777

Balance of banking system

(3)

1,762

474

296

2,527

7,960

Exchange Fund Bills and Notes

53,125

83,509

89.338

98,334

101,828

Placements by other government funds (4)

125,916

145,898

237,629

424,562

392,206

Other liabilities (5)

38,600

45,130

26,770

52,364

85,932

300.600

361,655

446,447

670,030

711,898

Accumulated Surplus

160,134

172,862

190,226

242,245

290,858

Notes: (1) Assets and liabilities 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 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, Canadian dollar, Danish krone, Deutschemark, Euro, 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, placements by other government funds for which interest is payable at predetermined fixed rates, placements by other statutory bodies and other borrowings are valued according to a price matrix of discounted cash flows using period 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 placements by other government funds for which interest is payable at predetermined fixed rates, which are stated in the Balance Sheet at the principal amounts payable at the balance sheet date with the revaluation differences included in other liabilities. Placements by other government funds for which interest is payable at rates determined by reference to the investment income of the Fund are stated at the principal amounts payable at the balance sheet date.

(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 the 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) 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.

(4) These represent placements by other government funds with the Exchange Fund. Until 31 March 1998, all placements by other government funds bore interest at predetermined fixed rates. With effect from 1 April 1998, the basis of interest payable on certain placements by other government funds was amended from predetermined fixed rates to rates determined by reference to the investment income of the Fund.

(5) Other liabilities include placements by other institutions, interest payable on Exchange Fund Notes and placements by other government funds, other accrued expenses and the revaluation differences of placements by other government funds for which interest is payable at predetermined fixed rates.

Source: Hong Kong Monetary Authority.

(Enquiry Telephone No.: 2878 8222)

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