HKCEE Macroeconomics

Chapter 3: Banking and Financial
Systems
By Mr. LAU san-fat
CH3-Banking & Financial Systems
1
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
2
Functions of a Central Bank
1.
2.
3.
4.
5.
6.
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
3
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
4
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
5
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
6
Services of Commercial Banks
1. Taking deposits
 Demand deposits, savings deposits, time
deposits & negotiable certificates of
deposits
2. Granting loans
 Fixed loans and overdraft
3. 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
7
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
8
Services of Merchant Banks
1. Taking large-amount deposits from
companies & investors
2. Providing financial advisory service to
companies
3. Underwriting new shares after inviting
public subscription
4. Providing (retirement) fund
management services
5. Arranging syndicated loans
By Mr. LAU san-fat
CH3-Banking & Financial Systems
9
The Three-tier System of
Deposit-taking Institutions
1. Licensed banks (lb)
 Examples: the Hong Kong and Shanghai
Banking Corporation Ltd., and the
Standard Chartered Bank
2. Restricted licensed banks (rlb)
 Example: the Citicorp International Ltd.
3. Deposit-taking companies (dtc)
 The JCG Finance Company Ltd.
By Mr. LAU san-fat
CH3-Banking & Financial Systems
10
The Three-tier System of
Deposit-taking Institutions
LB
Min. paid-up $150
capital
million
Types of
All types
deposits
Min. amount
of deposits
Maturity of
deposit
By Mr. LAU san-fat
Any
amount
Any
maturity
RLB
$100 million
DTC
$25 million
Time
deposits &
NCDs
$500 000
Time deposits
& NCDs
Any maturity
Min. 3 months
CH3-Banking & Financial Systems
$100 000
11
Financial Markets in HK
 Major financial markets:
1.
2.
3.
4.
5.
The
The
The
The
The
Money Market (short-term liquid assets)
Capital Market (shares & bonds)
Foreign Exchange Market
Futures Market
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
12
Factors Turning HK into an
International Financial Centre
1.
2.
3.
4.
5.
6.
Favourable geographical position
Favourable time zone location
Well-developed financial services
Advanced telecommunications facilities
Absence of exchange control
Favourable government policies (laissezfaire policy & low tax rates)
7. Increasing economic links with the Mainland
By Mr. LAU san-fat
CH3-Banking & Financial Systems
13
Contributions of a Financial
Centre to HK Economy
1. Speeding up economic growth
2. Increasing economic links with the
rest of the world
3. Increasing employment opportunities
By Mr. LAU san-fat
CH3-Banking & Financial Systems
14
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