HKCEE Macroeconomics

1. HKCEE Macroeconomics • Chapter 3: Banking and Financial Systems CH3-Banking & Financial Systems

2. 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 CH3-Banking & Financial Systems

3. 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 CH3-Banking & Financial Systems

4. 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. CH3-Banking & Financial Systems

5. 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. CH3-Banking & Financial Systems

6. 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. CH3-Banking & Financial Systems

7. 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 CH3-Banking & Financial Systems

8. 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 CH3-Banking & Financial Systems

9. 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 CH3-Banking & Financial Systems

10. 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. CH3-Banking & Financial Systems

11. The Three-tier System of Deposit-taking Institutions CH3-Banking & Financial Systems

12. 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. CH3-Banking & Financial Systems

13. 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 CH3-Banking & Financial Systems

14. Contributions of a Financial Centre to HK Economy • Speeding up economic growth • Increasing economic links with the rest of the world • Increasing employment opportunities CH3-Banking & Financial Systems