Hong Kong has advanced one place to rank sixth in the global foreign exchange market, and seventh in the global foreign exchange and over-the-counter derivatives market, according to the latest Bank for International Settlements triennial survey results.

The Monetary Authority said the results are broadly in line with global trends, with Deputy Chief Executive William Ryback adding: "The advance in Hong Kong's global ranking in terms of foreign exchange trading is encouraging as it reinforces Hong Kong's position as a competitive and active centre for foreign exchange and derivatives activities."

Foreign exchange up 52.9%

The survey found net daily turnover of foreign exchange transactions rose 52.9% to US$102.2 billion in 2004, compared with 2001.

Marked growth was seen in both spot and forward transactions, with the former rising 87.9% to US$35.6 billion and the latter by 39% to US$66.5 billion.

Forwards, nonetheless, comprise a majority of the foreign exchange transactions and a large proportion was of short maturity, less than seven days.

As expected, the Hong Kong dollar against the US dollar remained the most heavily traded currency pair on the local market. Trading of other currency pairs also rose, reflecting the deepening of Hong Kong's foreign exchange market.

Increased asset management activities in Hong Kong and the increase in treasury operations of banks on the back of narrowed lending margins were probably the key factors behind the growth.

Particular market conditions, which included unprecedented low interest rates at near zero prompting investors to seek higher returns via the foreign exchange market, and the broad depreciation of the US dollar prompting investors to purchase non-US dollar foreign currencies for valuation gains, also additionally contributed to the growth.

Over-the-counter derivatives up 2.6 times

Average daily net turnover of over-the-counter derivatives (both foreign exchange and interest rate derivatives) rose by 2.6 times to US$14.9 billion.

Strong growth was seen in both foreign exchange derivatives and interest rate instruments, particularly the latter due to growing anticipation of interest rate increases in 2004.

In contrast to the significant rise in 2001, turnover in the Hong Kong dollar against the US dollar shrank by 38.2% in 2004. Its share to total net turnover fell from 28.2% in 2001 to 7.2%.

On single currency interest rate derivatives, US dollar denominated contracts surpassed Hong Kong dollar denominated contracts to represent the largest share of gross turnover in 2004.

Although Hong Kong dollar contracts grew 97.5%, its share reduced from 59.3% to 27.7% to rank third after the US dollar and Japanese yen as contracts denominated in yen increased strongly.