1.

The monetary base of Hong Kong includes HKD notes and coins, EF bills and notes outstanding, balance of the banking system. 2. Banks in Hong Kong are over-exposed to 3. 4. 5. 6. Today, the discount windows base rate is always higher than the Fed Fund Target Rate. An important determinant of the cost of funds of small banks in Hong Kong is: HIBOR. There was a moratorium on the issuance of new bank licenses in HK in the period 1965-1978. Banks in Hong Kong can obtain HK dollar funding from other banks through direct borrowing

at the interbank market, selling USD or other foreign currencies to other banks for HKD, and selling HKD denominated securities to other banks in HK. 7. The three note issuing banks in Hong Kong benefit from higher profile. 8. Under the seven technical measures, new Non-EF papers are no longer acceptable as collaterals by the discount window because the EF has no control over the quantity of Non-EF papers issued. 9. A reverse repurchase agreement (reverse repo) involves an agreement to buy a security today and to sell it back to the original owner at a later date at an agreed upon price. 10. The EF decreases HKD interbank liquidity today by sale of EF papers. 11. The settlement institution for the clearing of USD transactions between banks in Hong Kong is currently HSBC. 12. Hong Hongs linked exchange rate system can be a contribution factor of inflation, deflation, and recession. 13. The Hong Kong dollar had been directly linked to USD, the pound sterling, and silver. 14. When a Hong Kong non-bank investor buys Exchange Fund Paper from the Exchange Fund, the aggregate balance of the banking system stays the same. 15. HSBC enjoyed many special privileges in the past; today still enjoys the following privileges: issuer of HKD notes, settlement institution for the clearing of USD transactions between banks in Hong Kong, and shares Chairmanship of the Hong Kong Association of Banks on a rotating basis with two other banks. 16. Then HIBOR is very low, the linked exchange rate system is under pressure. 17. The capital market in Hong Kong includes the stock market. 18. The HKMA follows the decisions of the FOMC closely because the HKD is linked to the USD. 19. Herstatt risk arises in foreign exchange transactions when the two counterparty is located in different time zones. 20. The HKMA requires all licenses banks to maintain a non-negative balance in their clearing accounts. 21. FOMA stands for Federal Open Market Committee. 22. When the Exchange Fund sells Exchange Fund Papers to a license bank, the aggregate balance of the banking system decreases. 23. The central bank of China is Peoples Bank of China.

24. What does CAMEL in the CAMEL rating system stand for: Capita, Asset Quality, Management, Earnings, and Liquidity. 25. The HKD was allowed to float between 1974 and 1983. During that period, when note-issuing banks wanted to issue new HKD notes: they had to transfer HKD deposits to the Exchange Fund. 26. O/N HIBOR is Hong Kongs equivalent of the US Federal Funds Target rate. 27. Which of the following is an off-balance sheet item: futures, line of credit, warrants. 28. Which of the following liabilities of the Exchange Fund is not an interest-bearing liability: certificates of indebtness, coins in circulation, balance of the banking system. 29. During the Bretton Woods era, if the major western nations conducted their own independent monetary policies and capital was allowed to flow freely, their exchange rates might have to be adjusted periodically. 30. Which of the following inequalities is usually correct prime rate>HIBOR>deposit rate, 6M HIBOR>3M HIBOR>O/N HIBOR, HKD discount rate>US Fed Funds Rate. 31. The clearing balances of licensed banks in Hong Kong are liabilities of the Exchange Fund and assets of the licensed banks. 32. According to Mundells Holy Trinity, free movement of capital, fixed changed rate, and independence in setting monetary policy cannot exist simultaneously. 33. Under todays linked exchange rate system, note-issuing banks can exchange HKD banknotes for USD and vice ver4sa with the Exchange Fund at the rate of HK$78=USD10. 34. Banknotes issued by HSBC and held by the Bank of China are assets of the Bank of China, and liabilities of HSBC. 35. SHIBOR stands for Shanghai Interbank Offer Rate. 36. Which of the following is not the responsibility of the HKMA: regulation of the insurance sector, supervision of the securities and futures markets, and supervision of moneylenders? 37. The discount rate is 38. PvP refers to Payment versus Payment. 39. The Bretton Woods System was an international monetary system based on the linkage of the US dollar to gold, a pegged exchange rate system, established in the mid-1940s and abolished in the early 1970s. 40. Exchange Fund papers are issued to provide the HKMA with a useful tool to management interbank liquidity.