CH3-Banking & Financial Systems HKCEE Macroeconomics Chapter 3: Banking and Financial Systems By Mr. LAU san-fat CH3-Banking & Financial Systems

Function & Types of Banks Banks act as financial intermediaries that accept deposits and channel them into productive investment. Types of banks Central bank Commercial banks Merchant banks By Mr. LAU san-fat CH3-Banking & Financial Systems

Functions of a Central Bank Issuing note Acting as the lender of last resort Acting as the government banker Acting as a clearing house Supervising private banking activities Carrying out monetary policies via varying the discount rate By Mr. LAU san-fat CH3-Banking & Financial Systems

Central Bank Functions in HK Lender of last resort The Exchange Fund/HK Monetary Authority Note-issuing The Hong Kong and Shanghai Banking Corporation Ltd., the Standard Chartered Bank, the Bank of China, and the Hong Kong Monetary Authority. By Mr. LAU san-fat CH3-Banking & Financial Systems

Central Bank Functions in HK Government bank The Hong Kong and Shanghai Banking Corporation Ltd. & the Bank of China The Treasury The Hong Kong Monetary Authority Bank of central clearance The Hong Kong Interbank Clearing Ltd. By Mr. LAU san-fat CH3-Banking & Financial Systems

Central Bank Functions in HK Banking supervision The Hong Kong Monetary Authority Execution of monetary policies Since the abolition of the interest rate agreement among banks, monetary policies in HK are restricted. The HK Monetary Authority could mainly aim at stabilizing the exchange rate & maintaining the linked exchange rate system. By Mr. LAU san-fat CH3-Banking & Financial Systems

Services of Commercial Banks Taking deposits Demand deposits, savings deposits, time deposits & negotiable certificates of deposits Granting loans Fixed loans and overdraft Financing imports or export trade By issuing letters of credit (L/C) & discounting bills of exchange By Mr. LAU san-fat CH3-Banking & Financial Systems

Services of Commercial Banks 4. Other services Issuing gift cheques and cashier’s order or bank draft Providing credit cards & mortgage Providing ATM machines services Sending remittance overseas Dealing in foreign currencies, gold & shares Offering insurance services By Mr. LAU san-fat CH3-Banking & Financial Systems

Services of Merchant Banks Taking large-amount deposits from companies & investors Providing financial advisory service to companies Underwriting new shares after inviting public subscription Providing (retirement) fund management services Arranging syndicated loans By Mr. LAU san-fat CH3-Banking & Financial Systems

The Three-tier System of Deposit-taking Institutions Licensed banks (lb) Examples: the Hong Kong and Shanghai Banking Corporation Ltd., and the Standard Chartered Bank Restricted licensed banks (rlb) Example: the Citicorp International Ltd. Deposit-taking companies (dtc) The JCG Finance Company Ltd. By Mr. LAU san-fat CH3-Banking & Financial Systems

The Three-tier System of Deposit-taking Institutions LB RLB DTC Min. paid-up capital $150 million $100 million $25 million Types of deposits All types Time deposits & NCDs Min. amount of deposits Any amount $500 000 $100 000 Maturity of deposit Any maturity Min. 3 months By Mr. LAU san-fat CH3-Banking & Financial Systems

Financial Markets in HK Major financial markets: The Money Market (short-term liquid assets) The Capital Market (shares & bonds) The Foreign Exchange Market The Futures Market The Gold Market It is supervised by the Securities and Futures Commission of Hong Kong with the Securities and Futures Ordinance. By Mr. LAU san-fat CH3-Banking & Financial Systems

Factors Turning HK into an International Financial Centre Favourable geographical position Favourable time zone location Well-developed financial services Advanced telecommunications facilities Absence of exchange control Favourable government policies (laissez-faire policy & low tax rates) Increasing economic links with the Mainland By Mr. LAU san-fat CH3-Banking & Financial Systems

Contributions of a Financial Centre to HK Economy Speeding up economic growth Increasing economic links with the rest of the world Increasing employment opportunities By Mr. LAU san-fat CH3-Banking & Financial Systems