ENG-2004 — Page 581

Table 12

(Chapter 4: Financial and Monetary Affairs)

Exchange Fund Balance Sheet

1999

Appendices I 511

HK$ Million

As at end of year

2003

2004

Assets(1)

Foreign currency assets

755,115

929,625

969,341

Hong Kong dollar assets

247,641

82,020

92,513

1,002,756

1,011,645

1,061,854

Liabilities(1)

Certificates of Indebtedness(2)

118,195

134,215

146,775

Government-issued currency notes and

5,777

6,297

6,351

coins in circulation

Balance of the banking system(3)

7,960

28,277

15,789

Exchange Fund Bills and Notes

101,828

123,520

125,860

Placements by other HKSAR government

392,206

252,296

280,091

funds(4)

Other liabilities(5)

85,932

82,161

63,397

711,898

626,766

638,263

Fund Equity

290,858

384,879

423,591

Notes: (1) (a) Investment

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 the US dollar assets, the Fund also holds assets denominated in fully convertible foreign currencies. (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