International Financial Centre Overview
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Questions and Answers

What percentage of Hong Kong's GDP is accounted for by the financial sector?

  • 12.5%
  • 22.4% (correct)
  • 15.0%
  • 30.7%

    • How does the financial sector in Hong Kong influence related sectors?

  • It has no impact on related sectors.
  • It drives the growth of sectors such as legal and insurance. (correct)
  • It causes a decline in related sectors.
  • It diversifies the economy by eliminating dependence on these sectors.

    • What challenge does volatility in the financial market pose to businesses in Hong Kong?

  • It makes it easier for investors to keep their money invested.
  • It can lead to increased costs, making operations harder. (correct)
  • It guarantees constant profit for businesses.
  • It reduces the need for educated employees in other sectors.

    • What happens in the absence of foreign exchange control in Hong Kong?

    <p>Investors can easily withdraw money during pessimistic market sentiments.</p> Signup and view all the answers

    What factor is contributing to the challenges faced by Hong Kong as an international financial center?

    <p>Competition from other financial markets offering higher returns.</p> Signup and view all the answers

    What is the primary purpose of financial markets?

    <p>To allocate savings and transfer capital</p> Signup and view all the answers

    How does the buy side earn profit in financial markets?

    <p>By buying low and selling high</p> Signup and view all the answers

    Which of the following is NOT a feature of an international financial centre?

    <p>Presence of companies issuing local currency only</p> Signup and view all the answers

    Which financial instrument represents ownership in a company?

    <p>Share</p> Signup and view all the answers

    What role do investment banks play in the financial market?

    <p>They facilitate the sale of financial instruments</p> Signup and view all the answers

    What do bonds provide to investors in return for lending money?

    <p>Regular interest payments</p> Signup and view all the answers

    What is an example of a complex financial instrument?

    <p>Options</p> Signup and view all the answers

    How do sell-side entities typically earn profit?

    <p>Charging commissions and fees for services</p> Signup and view all the answers

    What is a disadvantage for Chinese companies considering the Hong Kong stock market?

    <p>Geopolitical risks associated with the region</p> Signup and view all the answers

    Which statement is true regarding the market capitalisation of Mainland companies in Hong Kong?

    <p>The market value of Mainland companies exceeds 70% of the total market capitalisation</p> Signup and view all the answers

    What recent initiative has been taken to enhance Hong Kong's status as a financial hub?

    <p>Developing new financial products like Green Bonds</p> Signup and view all the answers

    How are Hong Kong's financial markets likely to be affected by slow economic growth in Mainland China?

    <p>Financial markets in Hong Kong can be negatively impacted</p> Signup and view all the answers

    Which factor is mentioned as a positive attribute of Singapore as a financial market?

    <p>Familiarity with the Southeast Asian market</p> Signup and view all the answers

    What primarily indicates the maturity of a market?

    <p>Total market capitalisation</p> Signup and view all the answers

    Which factor is NOT a reason for Hong Kong's development as an international financial centre?

    <p>High import tax rates</p> Signup and view all the answers

    How does Hong Kong facilitate investment from Mainland China?

    <p>Through the Southbound and Northbound Stock Connect</p> Signup and view all the answers

    What is a characteristic of Hong Kong's currency in relation to investment?

    <p>It is freely convertible and pegged with the U.S. Dollar</p> Signup and view all the answers

    Which of the following best describes the workforce in Hong Kong?

    <p>Bilingual and trilingual, well-educated</p> Signup and view all the answers

    What legal framework supports private property rights in Hong Kong?

    <p>The Basic Law</p> Signup and view all the answers

    Which statement best reflects the financial sector's role in Hong Kong?

    <p>It is one of the pillar industries.</p> Signup and view all the answers

    Which of the following is a major tax advantage of investing in Hong Kong?

    <p>Absence of capital gains tax</p> Signup and view all the answers

    Study Notes

    International Financial Centre

    • Finance directs savings to economic activity, allocating capital.
    • Financial markets facilitate this transfer between buyers (who have funds) and sellers (who need funds).
    • Key players include individual and institutional investors (e.g., mutual funds, pension funds, insurance companies, private equity) and investment banks.
    • Profit for the buy side comes from buying at a low price and selling at a high price.
    • Profit for the sell side comes from fees and commissions.

    Financial Instruments

    • Financial instruments facilitate the process of transferring funds, including shares (representing ownership), funds (pooling investor capital), bonds (debt instruments), and derivatives (complex financial instruments like options and futures).

    International Financial Centre (IFC) Characteristics

    • An IFC is a substantial international financial market.
    • Key features include presence of investors, financial instruments, financial institutions, and financial services.

    Hong Kong as an IFC

    • Hong Kong has close ties with Mainland China, making it a preferred market for Mainland corporations seeking international finance (many IPOs originate there).
    • It facilitates cross-border investment between Hong Kong and Mainland China through Stock Connect programs.
    • Hong Kong has a time zone advantage, enabling trading during off-peak hours in other markets.
    • Hong Kong has a free-flow of capital and a linked exchange rate with the U.S. Dollar, minimizing currency risks. It has no capital gains or dividend taxes.
    • A well-educated and multilingual workforce supports the financial industry.

    Challenges for IFCs

    • Competition from other global financial markets for capital.
    • Disadvantages in the market structure due to size and geopolitical considerations.
    • Investors may be attracted to instruments without understanding their associated risks.
    • Some markets lack mature infrastructure or well-established regulatory systems.

    Strengthening Hong Kong's IFC Position

    • Policy measures could include development of newer financial products (RMB bonds, Green Bonds).
    • Exploring new markets (e.g., attracting Middle Eastern companies to list in Hong Kong).
    • Developing a family office market.

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    Related Documents

    Module 18 International Financial Centre Supplementary Notes PDF

    Description

    This quiz covers the fundamentals of International Financial Centres (IFCs), including their characteristics and key players. It also explores financial instruments that facilitate capital transfer within these markets. Test your understanding of how finance drives economic activity through different financial avenues.

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