2005 Exchange Fund Position

1
2005 Exchange Fund Position

• Press Conference
• 19 January 2006

2
Investment Objectives ofThe Exchange Fund

• Investment objectives of the Exchange Fund are
• (1) to preserve capital
• (2) to ensure that the entire Monetary Base at
  all times will be fully backed by highly liquid
  short-term US dollar denominated securities
• (3) to ensure sufficient liquidity for the
  purpose of maintaining monetary and financial
  stability and
• (4) subject to (1) (3) above, to achieve an
  investment return that will preserve the
  long-term purchasing power of the assets.

3
Markets in 2005

• Exchange rates
• Yen vs USD -13.2
• Euro vs USD -13.2
• Equity markets
• US (SP500) 3.0
• Europe (MSCI Europe) 21.6
• Japan (Topix) 43.5
• Hong Kong (HSI) 4.5
• Interest rates
• USD (Fed funds target rate) 2.0
• Euro (ECB repo rate) 0.25
• Yen (BoJ call rate) no change

4
Investment Income
Unaudited figures for 2005 Including
dividends
5
Exchange FundChange in Accumulated Surplus
Note (1) The effect of changing from using
mid-price to using bid-price for valuing
securities held, and using ask-price for valuing
securities issued.
6
Exchange FundHistorical Change in Accumulated
Surplus
unaudited figures for 2005
7
Exchange FundAbridged Balance Sheet
Note (1) Before 2005, premises were stated at
valuation less depreciation. From 2005, premises
are stated at cost less depreciation. The
revaluation surplus on premises is therefore
reversed.
8
Exchange Fund Performance Against Investment
Benchmark

• Investment return from 2000 computed in
  accordance with CFA Global Investment Performance
  Standards

9
Investment Return of the Exchange Fund
Hong Kong CPI-A at end-November 2005
Investment return from 2000 computed in
accordance with CFA Global Investment Performance
Standards
10
Treasury Return Against Estimate
11
Outlook for 2006
12
Currencies
102.0
104.2
106.4
108.7
111.1
113.6
116.3
119.0
121.9
13
Currencies
102.0
104.2
106.4
108.7
111.1
113.6
116.3
119.0
121.9
14
Bond yields
102.0
104.2
106.4
10-year Bund yield (LHS)
108.7
111.1
113.6
116.3
119.0
121.9
15
Bond yields
102.0
104.2
106.4
108.7
111.1
113.6
116.3
119.0
2-year JGB yield (RHS)
121.9
16
Equities
17
Equities
18
2005 Exchange Fund Position

• Press Conference
• 19 January 2006