ENG-2001 — Page 584

APPENDICES

APPENDIX 20

(Chapter 5: Financial and Monetary Affairs)

Exchange Fund Balance Sheet

$ Million

As at end of year

1997

1998

1999

2000

2001A

Assets (1)

Foreign currency assets

Hong Kong dollar assets

588,475

701,239

755,115

856,680

878,847

48,198

211,036

247,641

166,683

101,717

636,673

912,275

1,002,756

1,023,363

980,564

Liabilities (1)

Certificates of Indebtedness (2)

87,015

86,465

118,195

99,265

107,545

Coins in circulation

5,399

5,778

5,777

5,918

5,691

Balance of banking system

(3)

296

2,527

7,960

669

671

Exchange Fund Bills and Notes

89,338

98,334

101,828

109,288

118,157

Placements by other HKSAR government funds (4)

237,629

424,562

392,206

417,162

Other liabilities (5)

380,602

26,770

52,364

85,932

83,962

65,154

446,447

670,030

711,898

716,264

677,820

Accumulated Surplus

190,226

242,245

290,858

307,099

302,744

Notes: (1) Assets and liabilities include the following accounts:

(a) Investment

504

Note:

Source:

The Fund is invested in interest-bearing placements with banks and other financial institutions 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 foreign currency assets is held in US dollars. Apart from US dollar, the Fund also holds assets denominated in other foreign currencies, including the Canadian dollar, Euro, Japanese yen and pound sterling.

(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 and liabilities

Debt securities, equities and Exchange Fund Bills and Notes are valued in the accounts at market value at the balance sheet date. Placements with banks and other financial institutions, certificates of deposit, consideration received or paid under repurchase and resale agreements, securities lending agreements, placements by banks and other financial institutions, placements by other HKSAR government funds for which interest is payable at market-based rates and placements by Hong Kong statutory bodies are valued according to a price matrix of discounted cash flows using applicable 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 HKSAR government funds for which interest is payable at market-based 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 HKSAR 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 and with effect from 1 April 1999 Coins in Circulation, both of 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 bank note issues, each note-issuing bank is required to hold a non-interest bearing Certificate 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.

(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 HKSAR government funds with the Exchange Fund. Until 31 March 1998, all placements by other HKSAR government funds bore interest at market-based rates. With effect from 1 April 1998, the basis of interest payable on certain placements by other HKSAR government funds was amended from market-based rates to rates determined by reference to the investment income of the Fund.

(5) Other liabilities include placements by banks and other financial institutions, placements by Hong Kong statutory bodies, interest payable on Exchange Fund Notes and placements by other HKSAR government funds, revaluation losses on off-balance sheet items which are marked to market, other accrued expenses and provisions and the revaluation differences of placements by other HKSAR government funds for which interest is payable at market-based rates.

^ Unaudited figures.

Hong Kong Monetary Authority.

(Enquiry Telephone No.: 2878 8222)