hsbc s guide to emerging market currencies 2008

Perry Kojodjojo*

FX Strategist, Asia

+852 2996 6568

[email protected]

Perry joined HSBC in 2005 as part of the global EM FX strategy team. He is based in Hong Kong.

HSBC’s Guide to EmergingMarket Currencies 2008The new encycle on what can and cannot be done

Macro

Currencies

December 2007

This compendium of regulations is an essential companion for investing, hedging or

simply transacting in emerging market currencies.

Although markets are gradually de-regulating, many restrictions and requirements remain.

With our global footprint, HSBC provides a full service across the emerging market’s universe

in both deliverable and non-deliverable currencies.

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Richard Yetsenga*

Asian Regional FX Strategist

+852 2996 6565

[email protected]

Richard is a Hong Kong-based member of HSBC’s global emerging markets FX research team covering Asia. Prior to joining HSBC in 2004,

he worked in currencies and economics research, including four years with the Australian government.

Daniel Hui*

FX Strategist, Asia

+852 2822 4340

[email protected]

Daniel is a Hong Kong-based FX strategist covering Asia. Prior to joining HSBC in 2007, he worked as an economist covering South-East Asia and

Greater China. Daniel received his masters from Johns Hopkins University concentrating on international economics and Asian economic

development.

Clyde Wardle

Emerging Markets Currency Strategist

+1 212 525 3345

[email protected]

Clyde is a New York-based emerging markets currency strategist, focusing mainly on Latin America. He also provides emerging market risk

management advice to HSBC’s global client base. He has been with the Bank for 13 years.

Dominic Bunning*

Junior FX Strategist

+44 20 7991 5970

[email protected]

Dominic is a junior FX strategist based in London on a one-year placement from Bath University.

* Employed by non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to NYSE and/or NASD regulations.

Disclosures and Disclaimer This report must be read with the disclosures and analyst

certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

1

Macro Currencies December 2007

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The world's local emerging markets bank HSBC’s tradition as a key player in emerging markets dates back more than 140 years. The Group has

10,000 local offices worldwide, including locations throughout Latin America, Asia and the Pacific Rim,

Eastern Europe, the Middle East and Africa. Of these, 86 are Treasury offices, serving 56 countries and

territories.

Our long-standing local presence in emerging markets gives us unrivalled local intelligence of both

regulations and market activity, while our extensive commitment to trading local markets gives HSBC an

enviable position in offering market liquidity to clients on a global basis. For our clients, this translates

into an unparalleled strategic advantage.

Investment products and services HSBC supports clients with 24-hour sales coverage and services from our major trading centres in Hong

Kong, London and New York, offering a full suite of emerging market foreign exchange and investment

products. Our three major dealing centres work closely with local regional offices to ensure clients

receive best pricing and information flows.

Our emerging markets expertise and products are aligned with our own local investments, spanning:

Global foreign exchange

Local and hard currency debt markets

Derivatives

Research and strategy HSBC’s Emerging Markets Research is central to the Group’s overall research effort. On economics, the

group consists of regional teams stationed locally and coordinated globally. A regional Chief Economist

is responsible for each team – Benito Berber for Latin America, Juliet Sampson for Eastern Europe,

Middle East and Africa, and Peter Morgan for Asia. This results in views that are insightful at the local

level and, at the same time, sensitive to global trends and events.

HSBC’s Global Currency Strategy group is headed by David Bloom and relies on its own research,

cutting-edge quantitative tools and extensive market intelligence to assist clients in assessing market

value. The goal is to offer clients the best, usable currency trade strategies on asset, country, regional and

market levels, looking at multiple asset classes. The flagship research publication is the Emerging

Markets FX Roadmap, which covers all emerging market currencies on a monthly basis.

Emerging Markets FX: Approach & Capabilities

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Asia 3 Bangladeshi taka (BDT) 4

Brunei dollar (BND) 7

Chinese renminbi (CNY) 9

Hong Kong dollar (HKD) 14

Indian rupee (INR) 17

Indonesian rupiah (IDR) 21

Malaysian ringgit (MYR) 26

Mauritian rupee (MUR) 32

Pakistani rupee (PKR) 35

Philippine peso (PHP) 38

Singapore dollar (SGD) 42

South Korean won (KRW) 46

Sri Lankan rupee (LKR) 50

Taiwan dollar (TWD) 53

Thai baht (THB) 57

Vietnamese dong (VND) 65

Europe, Middle East and Africa 69 Bahraini dinar (BHD) 70

Croatian kuna (HRK) 72

Czech koruna (CZK) 74

Egyptian pound (EGP) 76

Hungarian forint (HUF) 78

Israeli shekel (ILS) 80

Jordanian dinar (JOD) 82

Kuwaiti dinar (KWD) 84

Lebanese pound (LBP) 86

Omani rial (OMR) 88

Polish zloty (PLN) 90

Qatari riyal (QAR) 93

Russian rouble (RUB) 95

Saudi riyal (SAR) 98

Slovak koruna (SKK) 100

South African rand (ZAR) 102

New Turkish lira (TRY) 105

UAE dirham (AED) 108

Latin America 110 Argentine peso (ARS) 111

Brazilian real (BRL) 115

Chilean peso (CLP) 120

Colombian peso (COP) 123

Honduran lempira (HNL) 127

Mexican peso (MXN) 129

Nicaraguan cordoba (NIO) 133

Peruvian nuevo soles (PEN) 135

Uruguayan peso (UYU) 137

Venezuelan bolivar (VEB) 140

Contacts List 143

Disclosure appendix 144

Disclaimer 145

Contents

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Asia

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HSBC started its operations in Bangladesh in

1996. Within this short time HSBC has

established itself as the second largest

multinational bank in the country.

The Bangladesh FX market is still nascent and

foreign currency can be bought against BDT only

in valid commercial transactions. Roughly 7% of

country’s trade business is done through HSBC.

We are one of the largest and most active market

makers of spot FCY/BDT and G7 FX.

Spot

Speculation in BDT is not allowed. BB usually

gives indicative levels at which the currency

should be traded and banks generally do not quote

two-way prices. There are no brokers in the

market and most deals are done over the phone.

Forwards/FX swaps

The forward interbank market is still somewhat

restricted due to some regulatory provisos and so

interbank forwards are not very active.

Underlying commercial transactions must be

present for any forward transactions (either with

corporate or interbank counterparties). Usually

forwards are within 3-6 month tenors. With

specific approval from the central bank, long

dated forwards may be structured to meet specific

needs. FX swaps are only transacted with

interbank counterparties and are mostly up to 1

month tenors.

Options

There is no developed BDT options market as yet.

However, HSBC will look at enquires on a case

by case basis.

HSBC is also a leading provider of structured FX

products and can offer clients solutions using FX

options for risk management or investment

purposes.

Normal market conditions Normal market conditions

Onshore average daily volume USD16m Onshore spot transaction USD250-500k Onshore bid/ask spread 10 pips (0.10 BDT)

Note: Spreads are subject to change with market developments Source: HSBC

FX framework Exchange rate mechanism

BDT exchange rates are no longer determined by

BB. Banks now offer their own exchange rates

based on prevailing market conditions, while BB

Bangladeshi taka (BDT)

Bangladesh Bank (BB), Bangladesh’s central bank, maintains the

currency in a managed float regime

The BDT is non-deliverable and only the current account is

convertible

Since floating the currency in May 2003, USD/BDT has been

more stable under the BB’s close supervision

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intervenes from time to time to adjust expected

market rates.

Background

BB regulates the banking industry under the

guidance of the Ministry of Finance. Broadly,

its objectives are to promote and maintain

high levels of production, employment and

real income in Bangladesh, while fostering

the growth and development of the country's

productive resources.

BB also aims to regulate the currency, to

maintain forex reserves, and to manage the

monetary and credit system with a view to

stabilize inflation.

After becoming convertible in 1994, the BDT

was pegged to a weighted currency basket of

Bangladesh's major trading partners.

The BDT was depreciated by BB by an

average of 6% p.a. between 1996 and 2002.

The BDT was declared floating with effect

from 31 May 2003. With most other FX

regulations unchanged, this is deemed to be a

managed float, and the capital account is still

not convertible.

Repatriation & other regulations Regulations

Onshore-onshore

Onshore entities may engage in both spot and

forward transactions for valid underlying

commercial transactions – supporting

documentation is required in some special

cases.

Banks may extend local currency working

capital finance or local currency term loans to

foreign-owned/controlled companies

(manufacturing or non-manufacturing)

operating in Bangladesh.

On 26 October 2002, BB directed all banks to

cover forward sales with matching forward

purchases, and not to hedge forward sales to

customers with spot purchases. BB also

encouraged banks to purchase forwards from

exporters and inward remitters to alleviate

pressure on the spot market. In January 2005,

BB relaxed this rule such that banks are now

required to cover 50% of their forward sales

with forward purchases.

Offshore-onshore

Offshore counterparties can buy BDT freely

but are not allowed to sell BDT to purchase

foreign currency.

Cash related to securities transactions (i.e.

purchases, sales and income) must be routed

through a non-resident investor’s BDT

account.

Non-residents may invest in securities quoted

on the local stock exchange with foreign

exchange brought in from overseas. This can

be achieved by opening a non-resident

investor’s taka account (NITA) with any

bank.

Investors may buy foreign currency from this

NITA account freely.

Travellers may bring in up to USD5,000 (or

equivalent in other currency) without

declaration.

Liquidity at a glance

12am 2am 4am 6am 8am 10am 12pm 2pm 4pm 6pm 8pm 10pm 12am

= least liquidity = moderate liqu idity = most liquidity

Source: HSBC Notes: Times are based on Bangladesh local time = GMT + 6 hours

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Onshore-offshore

100% foreign-owned industrial enterprises

and joint-venture industrial enterprises

located in export processing zones may freely

borrow in foreign currency from local banks

as well as abroad without prior approval from

the central bank.

Offshore-offshore

There is no offshore market for BDT.

Repatriation

Remittance of non-residents’ income from

investments in Bangladesh and remittance of

dividends declared from previous years’

accumulated reserves do not require prior

central bank approval.

Taxation1 Capital gains from foreign investment in the

equity capital market are not taxed although

dividends earned on shares is subject to a

15% tax.

There are specific tax holidays and benefits

allowed for investment in any of the 8 Export

Processing Zones.

Taxation for investment in industry is similar

to local companies.

1 HSBC is not qualified to give tax and legal advice. Specific tax and legal questions should be directed to your appropriate advisor.

Additional information Holiday calendar

Date Event

2008 19 Jan Ashura* 21 Feb International Mother Language Day 26 Mar Independence Day 28 Mar Eid-e-Milad-un-Nabi* 14 Apr Bengali New Year 01 May May Day 19 May Buddha Purnima* 17 Aug Shab-E-Barat* 24 Aug Jammastami 28 Sep Shab-E-Qudr* 01 - 03 Oct Eid-ul-Fitr* 09 Oct Durga Puza 08 - 10 Dec Eid-ul-Azha* 16 Dec Victory Day 25 Dec Christmas Day

Note: *Subject to the appearance of the moon. Source: Metropolitan Chamber of Commerce and Industry, Dhaka

Information sources

Board of Investment www.boi.gov.bd Ministry of Finance www.mof.gov.bd Dhaka Stock Exchange www.dsebd.org Central Bank of Bangladesh www.bangladesh-bank.org Bgd Export Processing Zone Authority www.epzbangladesh.org.bd HSBC Reuters Dealing page HSDK

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HSBC has maintained a continuous presence in

Brunei Darussalam since 1947. We are currently

the largest foreign financial services organisation

operating in Brunei, offering the broadest range of

banking services.


Under the Currency Interchangeability

Agreement (CIA) between Singapore and

Brunei, the BND is pegged to the Singapore

Dollar (SGD) at par. The SGD is customary

tender in Brunei, along with the BND.

This agreement allows both countries to

interchange their currencies at par without

either running the risk of exchange rate

fluctuations; this further facilitates trade and

commerce between the two countries.

HSBC manages and operates the clearing

house for all banks in Brunei.

Background

Brunei has no central bank. The Ministry of

Finance, through the Currency Board and the

Financial Institutions Unit exercises most of

the functions of a central bank.

The Currency Board issues Brunei’s currency

and is responsible for maintaining monetary

stability, while the Financial Institutions Unit

acts as the principal licensing and monitoring

agency for banks and finance companies

operating in Brunei.

Repatriation & other regulations

There are no exchange control laws in Brunei.

Foreign investors and corporations can deal in

spot.

There is no FX forward market in Brunei.

Under the CIA, hedging can be conducted via

the Singapore Exchange (SGX) or over-the-

counter (OTC) options in Singapore.

Tenors in the Singapore market are liquid up to

one year, with prices available up to five years.

There is no FX options market currently.

Brunei dollar (BND)

The Brunei Currency and Monetary Board (BCMB) issues Brunei’s

currency and is responsible for maintaining monetary stability

The BND is fully convertible and there are no exchange controls

Under the Currency Interchangeability Agreement (CIA) between

Singapore and Brunei, the BND is pegged to the SGD at par

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Date Event

2008 1 Jan New Year 10 Jan New Islamic Year* 7 Feb Chinese New Year 23 Feb National Day 20 Mar Prophet Mohammad’s Birthday* 31 May RBAF Day 15 Jul HM The Sultan’s Birthday 30 Jul Israk Mikraj* 1 Sep First Day of Ramadhan* 17 Sep Anniversary of the Revelation of

the Quran* 1-2 Oct Hari Raya Aidifitri* 8 Dec Hari Raya Aidiladha* 25 Dec Christmas Day 29 Dec New Islamic Year* Note: * = Muslim Holidays are subject to change due to lunar sightings Source: HSBC

** Tentative

Information sources

Brunei Currency and Monetary Board www.brunei.gov.bn

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mainland China since 1865. We are currently the

largest foreign financial services organisation

operating in China, offering the broadest range of

banking services. HSBC was also the first foreign

bank given permission to conduct renminbi

business and trade in the renminbi interbank

market. HSBC is one of the 22 market makers in

the interbank RMB FX spot market, allowing

HSBC to provide two way quotations. HSBC is

active in the Chinese marketplace from offices in

Shanghai, London, New York and Hong Kong,

offering the following products:

Spot FX, deliverable forwards and FX swaps

out to 5 years2

Non-deliverable forwards out to 10 years

Non-deliverable FX options out to 5 years

with further tenors on case by case basis

Non-deliverable cross-currency swaps out to

5 years

Non-deliverable interest rate swaps out to 5

years

2 Onshore only – must be done through a designated FX bank

Spot

Onshore RMB FX spot is available with

documentary proof.

Forwards/FX swaps

In the onshore market, renminbi forwards and FX

swaps are available to onshore institutions up to 5

years maturity to hedge FX exposure. However,

documentary proof must be provided. In the

offshore market, the renminbi is traded as USD

settled non-deliverable forwards. Tenors are

available out to 10 years, however, the best

liquidity is found in tenors of 1 year or less.

Options

Dollar settled non-deliverable options (NDOs) are

available on the renminbi out to 5 years and

further tenors on a case by case basis. Options

expire simultaneously with the NDF fixing

publication.

In terms of FX structured products, HSBC is a

leading provider and can offer clients solutions

using FX options for risk management or

investment purposes.

Chinese renminbi (CNY)

The People’s Bank of China (PBOC), China’s central bank,

maintains the currency in a managed float with reference to a

basket of currencies

The renminbi (RMB) is non-deliverable and partially convertible

Since the end of the de-facto USD peg in July 2005, the currency

regime and market have been undergoing gradual liberalization

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Currency swaps

From 31 August 2007, institutions with FX

forward licences, Designated Foreign Exchange

Banks (DFXBs), can trade CNY currency swaps

in interbank market. The currency pairs are:

USD, EUR, JPY, HKD, GBP against CNY.

Interest rate swaps

CNY interest rate swaps (IRSs) are available for

financial institutions and corporates to hedge

CNY interest rate risk.

CNY forward rate agreements (FRAs) can only be

executed with financial institutions registered with

the PBOC.


Onshore daily average volume USD5-10bn Onshore spot transaction USD10-20m Onshore Bid/Ask spread 10 pips (0.0010 CNY) Onshore forward transaction USD10m Onshore forward spread 1-3M 30-50pips

(0.0030 – 0.0050 CNY) Offshore daily average volume USD3,000m NDF transaction USD10m NDF spreads 30-50 pips (0.0030 CNY) in 6M Offshore implied option volatility spread 0.3 vol

Note: Spreads are subject to change with market developments. Source: HSBC


The RMB is a managed, non-deliverable

currency.

The exchange rate of the RMB is determined

in the interbank foreign exchange market –

the China Foreign Exchange Trade System

(CFETS).

Five currency pairs are traded in CFETS:

USD-RMB, HKD-RMB, JPY-RMB, EUR-

RMB and GBP-RMB.

In the interbank market, the daily trading

band of the RMB against the USD is +/-

0.5%, around the opening fix.

On 4 January 2006, the USD-RMB middle

rate fixing changed from the previous CFETS

closing to a weighted average rate quoted by

all RMB market makers before the market

opens.

The bid/offer spread of the USD-RMB

exchange rate quoted to clients is limited to

1% around the USD-RMB middle rate as

announced by the PBOC.

From 1 January 2006 existing designated

foreign exchange banks (DFXBs) were

permitted to engage in a 'bilateral trading

platform' which allowed them to trade

directly with other member banks in the RMB

FX spot market, as opposed to just trading

with CFETS. However, they continue to be

governed by the daily +/- 0.5% trading band.

Central bank intervention mechanism

The PBOC conducts its open-market

operations via government bond repos as well

as issuing, buying and selling PBOC bills in

the interbank market. The PBOC also issued

special placement bills to some local banks to

discourage excessive credit growth in 2006.




Notes: Times are based on Shanghai local time = GMT + 8 hours Source: HSBC

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Background

On 21 July 2005, China announced a 2.1%

one-off revaluation of the RMB against the

USD, and the reform of exchange rate

mechanism where the RMB would no longer

pegged to the USD, but instead managed with

reference to a basket of currencies.

Although the full detail of the basket was not

disclosed at the time, on 10 Aug 2005 China

indicated that USD, EUR, JPY, KRW were

the main reference currencies in the basket.

The other currencies included were SGD,

MYR, RUB, AUD, THB and CAD. All these

currencies are among China’s top 15 trade

partners. Adherence to the basket has been

minimal.

The ability to quote in the local forward

market was previously highly restricted to

only the so-called “big four” – Bank of China

(BOC), Industrial & Commercial Bank of

China (ICBC), China Construction Bank

(CCB), and Agricultural Bank of China

(ABC) – and other three local banks – Bank

of Communication (BoComm), Citic

Industrial Bank and China Merchants Bank.

On 2 August 2005, PBOC expanded the

eligibility of RMB forward licenses to all

policy banks, state commercial banks, city

commercial banks, rural commercial banks

and rural cooperative banks, as well as

foreign banks. HSBC was granted approval

to trade RMB forwards in the interbank

market on August 2005, and obtained

approval to launch an RMB forward business

with corporate customers in September 2005.

The China Banking Regulatory Commission

(CBRC), which separated from the People’s

Bank of China (PBOC) in April 2003, has the

role of banking regulator. The PBOC is

responsible for monetary policy.

The State Administration of Foreign

Exchange (SAFE) is responsible for

implementing exchange control regulations.

Any non-explicitly addressed type of RMB

conversion and repatriation requires prior

approval from SAFE.

Fixing mechanism

Market opens at 9:30am and closes at 5:30pm.

The CNY fix is taken 2 days prior to value

and is the rate at 9:15am HK time as decided

by the PBOC and is published on Reuters

page SAEC. E.g. Value 28 April; fix 26 April.

Repatriation & other regulations Repatriation

Dividends

Since July 1996, PRC authorities have

allowed free RMB convertibility relating to

current-account items, including the payment

of dividends from after-tax profits, to be

effected at designated FX banks and

supported with written resolutions of the

board of directors concerning profit

distribution, audit reports and tax-clearance

documents.

Principal & interest

Repayment and repatriation of principal and

interest are capital-account items and subject

to prior SAFE approval.

A & B shares

A shares (denominated in RMB) are open to

Qualified Foreign Institutional Investors

(QFII) who have obtained approval from the

PBOC, SAFE and the China Securities

Regulatory Commission (CSRC).

Repatriation of principal and proceeds

derived from A-share investments is subject

to strict control.

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Sale proceeds and income from B shares

(denominated in USD and HKD) invested by

foreign investors can be repatriated.

All PRC-registered enterprises are required to

obtain tax-clearance documents from the local

tax authorities in order to remit non-trading-

type payments to overseas entities in excess

of USD1,000.

Regulations

China maintains strict controls on its

currency, although recently some progress has

been seen towards easing restrictions.

Non-residents and Foreign Investment

Enterprises (FIEs) must obtain a Foreign

Exchange Registration Certificate (FERC) to

open a foreign currency account onshore.

There are three types of foreign currency

accounts for non-residents: capital accounts

(for investment and repatriation), current

accounts (for trade) and loan accounts (for

receiving and repaying loans).

Residents may hold foreign currency in

onshore accounts.

Onshore-onshore

Spot

Only entities registered in China can trade

RMB onshore. All spot RMB FX transactions

must be executed with a DFXB. DFXBs can

square their net RMB position in CFETS.

On the current account, the RMB is freely

convertible provided all deals are supported

by eligible documents.

On the capital account, all RMB conversions

require SAFE approval except for converting

foreign currency-registered capital into RMB.

Forwards, FX swaps and options

Onshore entities can access the local forward

market provided these forward contracts are

used to cover current account transactions.

However documentary proof, such as trade

agreements, must be provided.

Onshore entities can also access the local

forward market for hedging of the following

capital items:

repayment of domestic foreign currency

working capital loans

repayment of external debt registered

with SAFE

income or expenses of direct investment

registered with SAFE

facilitation of capital injections of foreign

investment enterprises registered with

SAFE

remittance of foreign currency income of

an overseas listed domestic company

registered with SAFE

any other transaction with SAFE approval

Onshore currency options are currently not

available.

HSBC was granted approval to trade RMB FX

swaps in the interbank market on 1 April 2006

and obtained approval to trade RMB FX swaps

with corporate customers on 8 June.

Offshore-onshore

No entities outside China are allowed to

participate in trading of the RMB.

Onshore-offshore

Corporates registered in China cannot buy or

sell foreign currency offshore.

Any resident borrowing from abroad is

subject to stringent controls. All such loans

must be approved by and registered with

SAFE.

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Offshore-offshore

The offshore market is limited to non-

deliverable forward and swap instruments

(NDF, NDS).

HSBC was party to the first China NDS.

Taxation3 The base tax on corporate profits is 33%

(30% national and 3% local).

China has offered tax incentives to foreigners,

although this will likely change as China

moves towards compliance with WTO

regulations.


Date Event

2008 1 Jan New Year’s day 6-12 Feb Lunar New Year 4 Apr Ching Ming Festival 1 – 2 May Labour day 9 Jun Tuen Ng festival 15 Sep Mid-autumn festival 29 Sep – 3 Oct National day

Source: Bloomberg Information sources

The People’s Bank of China www.pbc.gov.cn State Administration of Foreign Exchange www.safe.gov.cn Ministry of Commerce www.mofcom.gov.cn National Development and Reform Commission www.ndrc.gov.ch China Banking Regulatory Commission www.cbrc.gov.cn China Securities Regulatory Commission www.csrc.gov.cn Reuters Fixing page PBOCA, HSBCNDF,

SAEC, CHIBOR Bloomberg Fixing page APF1<go>


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Established in Hong Kong in 1865, The

Hongkong and Shanghai Banking Corporation is

the founding member of the HSBC Group and the

Group’s flagship in Asia. HSBC is the largest

bank in Hong Kong and provides a

comprehensive range of financial services:

personal, commercial, corporate, trade services,

cash management, treasury and capital markets

services, trust and custody services. From trading

floors in Hong Kong, London and New York,

HSBC is active in Hong Kong’s markets offering

the following suite of products:

Spot FX

FX forwards out to 10 years

FX options out to 5 years and further tenors

on a case by case basis

Cross currency swaps out to 10 years

Interest rate swaps, local bonds and money

market products

Spot

The HKD is a freely tradable and convertible

currency that is linked to the USD and trades

within a band of 7.75 to 7.85.

Forwards/FX swaps

The forward market is active with the best

liquidity in shorter dated tenors. Estimated daily

turnover in the forward market is approximately

USD5bn. Normal transactions are around

USD50m although much larger transactions are

not uncommon in shorter dated tenors. There are

no restrictions on trading between onshore and

offshore.

Options

The options market is reasonably liquid with an

estimated daily volume of USD1-2bn. Options are

commonly available out to 5 years with longer

expirations available upon request. The normal

size of an options transaction can be as high as

USD500m.



Hong Kong dollar (HKD)

The Hong Kong Monetary Authority (HKMA) maintains a Currency

Board system that requires Hong Kong’s monetary base to be

fully backed by foreign reserves

The HKD is a freely tradable and convertible currency that is

linked to the USD with currency board backing

In May 2005, the HKMA introduced two-way convertibility in which

it guarantees to buy and sell at 7.75/7.85

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Currency swaps and bonds

Hong Kong’s swaps markets are well developed

and offer excellent liquidity. HSBC is active in

currency and interest rate swaps as well as local

sovereign and corporate debt markets.


Onshore average daily volume USD10bn Onshore spot transaction USD10m Onshore bid/ask spread 5 pips (0.0005HKD) Onshore forward transaction Up to USD50m Onshore forward spread out to 1 year 10 pips (0.0010HKD) Implied option volatility spread 0.2% (depending on tenor)



The HKD is a freely tradable and convertible

currency that is linked to the USD with currency

board backing. USD/HKD 7.80 is the rate at

which the note-printing banks can exchange HKD

notes for Certificates of Indebtedness and vice-

versa.


The HKMA has the ability to intervene anywhere

within the 7.75/7.85 convertibility band. Liquidity

can be adjusted via open-market operations,

including:

issuing and buying Exchange Fund Bills

the discount window

direct intervention in the FX market

a mandate introduced in 1988 (though as yet

unused) allows the HKMA to impose

negative nominal interest rates should

speculative flows become too great.

Background

Between 1974 and 1983, a floating exchange

rate regime was in place.

However, with huge volatility on all fronts –

GDP growth slowed to 0.3% in 1975, before

climbing to 16.2% in 1976, and inflation

swung from 2.7% in 1975 to 15.5% in 1980 –

on 15 October 1983 the government

announced a link to the USD at a rate of

HKD7.80.

The purpose of implementing the currency

peg was to provide a stable exchange rate

environment to conduct business in Hong

Kong, during what was expected to be a

period of uncertainty leading up to the 1997

handover of sovereignty.

The Hong Kong government remains

committed to the peg arrangement.

Between September and November 1998 new

measures were introduced by the Hong Kong

government designed to strengthen the

currency board.

In May 2005, the HKMA introduced a two-

way convertibility undertaking arrangement

whereby the HKMA stands to buy USD at

7.75 and sell USD at 7.85. Central parity

remains at 7.80.




Source: HSBC Notes: Times are based on Hong Kong local time = GMT + 8 hours

16


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The government of Hong Kong maintains no

controls on the currency:

There are no restrictions on the

repatriation of capital.

There are no restrictions on the

remittance of profits.

There are no restrictions on borrowing

from abroad.

There are no restrictions on non-residents

borrowing locally.

There are no restrictions on residents or

non-residents holding foreign currency in

onshore accounts.

The HKD is freely tradable and convertible.

Onshore spot, forward and currency option

markets are available to onshore and offshore

entities. The government makes no distinction

between local and foreign companies.

Both residents and non-residents are free to buy

and sell securities and other instruments on

Hong Kong’s capital and money markets, with

no restrictions on the types of account available.

There are no limitations on repatriation.

Cross-border remittances are readily

permitted and the authorities do not require

the disclosure of any related information.

Taxation4 Foreign investment has been one of the driving

forces behind Hong Kong’s development. The

government acknowledges the continued

importance of foreign investment in the economy


by imposing almost no restrictions on starting a

business in Hong Kong, except that all companies

must register pursuant to the Companies

Ordinance. With few exceptions, the government

allows 100% foreign ownership of local firms.

Hong Kong does offer several regional and

industry specific incentives, although the main

attractions for business are the low taxes,

developed infrastructure and generally open

attitude towards investment.

The base corporate tax rate is 17.5%.

To incorporate, a Certificate of Incorporation

must be obtained from the Companies Registry.

All tax issues should be addressed to the

Inland Revenue Service.

There are no capital gains or value-added

taxes, though debate is ongoing about the

introduction of a GST.

Numerous tax deductions are available on

expenses incurred for business.

Hong Kong has been strengthening its

regulation of firms that produce

environmentally unfriendly products.


Date Event

2008 1 Jan New Year’s day 17 – 20 Feb Lunar New Year 5 Apr Ching Ming Festival 6 Apr Good Friday 9 Apr Easter Monday 1 May Labour day 24 May Buddha’s Birthday 19 Jun Tuen Ng Festival 2 Jul SAR Establishment day 26 Sep Mid-Autumn Festival 1 Oct National Day 19 Oct Chung Yeung Festival 25-26 Dec Christmas Day

Source: HSBC, Bloomberg

Information sources

The Hong Kong Monetary Authority www.info.gov.hk/hkma Invest Hong Kong www.investhk.gov.hk

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HSBC’s origins in India date back to 1853, when

the Mercantile Bank of India was established in

Mumbai. HSBC has since steadily grown in reach

and service offerings, keeping pace with the

evolving banking and financial needs of its

customers. We are dominant participants in the

foreign exchange market offering the following

products:

Spot FX5

Offshore, non-deliverable forwards/swaps out

to 10 years

Onshore, deliverable forwards/swaps out to

15 years

Offshore non-deliverable options out to 5

years and further tenors on a case by case

basis

Onshore money market instruments

Onshore interest rate swaps out to 15 years

Onshore options out to 5 years

5 Customer sale of rupees can only be done onshore

Spot

The spot INR market is well developed and liquid,

with a large number of private, foreign and state-

run banks participating.

Forwards

Both local and offshore forward markets exist for

the rupee. Offshore non-deliverable forwards are

available out to 10 years. The fixing rate is set by

the RBI and posted to Reuters page ‘RBIB’. The

onshore deliverable forwards are typically

available for hedging only, i.e. only entities with

underlying exposure can book forward contracts.

However these rules have been liberalised through

the years and today corporate entities can use past

performance as underlying exposure and book

contracts. (Detailed regulations on the same can

be availed from the local office or from the central

bank website www.rbi.org.in.) The best liquidity

in the forward market is for tenors of one year or

less, but longer maturities are available.

Options

The market for rupee currency options is still

relatively illiquid compared to other emerging

market currencies. Offshore, HSBC can quote

non-deliverable options out to 5 years. Onshore,

Indian rupee (INR)

The Reserve Bank of India (RBI) maintains the currency in a

managed, floating regime

The INR is not deliverable, is convertible on the current account,

and is relatively restricted on the capital account

The RBI monitors the value of the rupee against a Real Effective

Exchange Rate (REER)

18


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the RBI lifted regulations prohibiting the trading

of options on the rupee in 2003. There are still

strict limitations on options trading onshore. For

instance, clients may not receive net premium and

barrier products are not allowed.





Normal market conditions


Onshore daily average volume USD4-6bn Onshore spot transaction USD5m Onshore bid/ask spot spread 1 pip (0.01 INR) Onshore forward transaction USD5m Onshore forward spread 1 pip (0.01 INR) Offshore daily average volume USD200-400m NDF transaction 1M USD5m NDF spread 1M 3 pips (0.03 INR) Onshore implied option volatility spread 0.3 vol Offshore implied option volatility spread 0.3 vol



The exchange rate of the INR is determined in

the interbank foreign exchange market. The

RBI announces a daily reference rate for the

INR against the USD, JPY, GBP and EUR.

While there is no band or peg that the RBI

monitors, the value of the rupee is tracked on

the basis of the Real Effective Exchange Rate

(REER). The REER consists of 6 currencies:

USD, EUR, GBP, JPY, CNY, and HKD.

However, the INR rate has been known to

deviate significantly from longer-term REER

trends.

The RBI intervenes actively in the foreign

exchange market in cases of excessive

volatility.

Background

Exchange controls are established by both the

government and the RBI. The Foreign

Exchange Management Act (FEMA) of 2000

mandates that the government will oversee

current account transactions while the RBI

will regulate capital accounts transactions.

Restrictions on purchases and sales of INR

have been significantly relaxed since the early

1990s.

Since 1995, the Indian rupee has had full

current account convertibility, though

exchange controls on capital account

transactions remain in effect.

Fixing mechanism

The market opens at 9am and closes at 5pm

Mumbai time (the market does not close for

lunch). It is open for corporates from 9am to

4.30pm.

The INR fix is the rate at 12 noon two

business days prior to value as published at

1pm on the RBI website and on Reuters. The

reference rate is based on inputs from selected

Mumbai banks. Eg Value 28 April; Fix 26

April.

To trade off the fix rate an order must be

passed before 1.45pm (prime liquidity

between 11am and 1.30pm) on the value date.

Mumbai cut expires 11.30am Mumbai time.




Source: HSBC Notes: Times are based on Mumbai local time = GMT +5.5 hours

19


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Non-residents may borrow locally, however

the money may not be remitted overseas.

Spot

Only “authorised dealers”, who are registered

with the RBI, can engage in buying and

selling of INR against foreign currencies with

the public. These positions are squared off in

the interbank market.

All FX transactions against the INR must be

executed and settled onshore.

Market participants may buy rupee freely

from any bank for transactions approved

under FEMA. Approval is not required for

most current account transactions

However, some types of transactions may be

subject to limits, where approval from the

Reserve Bank of India (RBI) is necessary.

Purchases of foreign currencies against INR

are allowed for current account transactions

such as trade and services payments, for

repatriating profits from foreign-funded

companies, as well as for daily recurring

transactions in the ordinary course of business

(eg, travel).

The INR is not convertible on the capital

account unless transactions come under the

standing approvals issued by the central bank

for routine capital account transactions, such

as investments by Foreign Institutional

Investors (FIIs). Other permitted capital

account transactions include foreign direct

investment, foreign currency loans and bonds,

securities and equity investments overseas.

Forwards and options

Onshore entities can access the local forward

market, provided these contracts are used to

cover genuine foreign exchange exposure.

Documentary proof – such as invoices or trade

agreements – must be provided to the

authorised dealer. The RBI does allow hedging

of trade exposure based on a company’s past

performance, subject to certain limits.

Onshore forward contracts can be freely

booked and cancelled for exposures of up to

one year. Forward contracts booked for capital

account exposures of more than one year, once

cancelled, cannot be rebooked.

FIIs may hedge their exposures onshore

through forward contracts or options.

All forward contracts booked by residents to

hedge current account transactions are

allowed to be cancelled and rebooked freely.

This is, however, not applicable to contracts

booked on past performance basis.

Onshore INR currency options have been

permitted since July 2003. All regulations

relating to forward contracts also apply to

currency options. Net receipt of premium is

not allowed under any option structure. Only

vanilla calls, puts and combinations thereof

are allowed. Barrier options are not allowed

in the onshore INR option market.

Residents borrowing from abroad are subject

to regulatory controls. However, there is an

automatic route that allows corporates to raise

External Commercial Borrowings (ECBs)

from overseas lenders within designated limits

and for specific end-uses.

Since 1 January 1993, foreign investors can

hedge any proposed FDI through forward

contracts provided they have received all the

regulatory approvals and completed all the

20


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formalities relating to the proposed

investment.

Other hedging instruments

Companies are allowed to use currency and

coupon swap transactions to hedge the FX

exposure on long-term foreign currency loans

or to lower interest costs on INR-denominated

borrowings.

Companies can use interest rate options, caps,

collars and forward rate agreements (FRAs) to

hedge the interest rate exposure on their

foreign currency borrowings.

Repatriation

Dividends

Companies are allowed to remit dividends

overseas to foreign investors after they have

been declared by the board of directors.

Companies are also allowed to hedge the FX

exposure on this dividend on behalf of the

foreign investors.

Non-resident companies can remit dividends

after all applicable taxes are paid.

Interest

Remittance of interest on foreign currency

loans / bonds is permitted.

Principal

Remittance of principal is allowed as per the

original loan agreement.

Tax clearance documentation must be

submitted for non-trade-related payments.

Taxation6 Historically, India has not been particularly open

to foreign investments. Over the past decade,

however, India has eased restrictions and now

allows full foreign ownership of businesses in


most (but not all) sectors of the economy.

Incentives are offered to companies willing to

invest in certain industries and underdeveloped

regions of the country. It should be noted that the

laws regarding foreign investments and taxation

have been known to change often. It is the

responsibility of the Ministry of Finance to levy

taxes.

The corporate tax rate (including surcharge) is

41.82% for foreign companies and 33.66%

for local companies.

The Indian government has been easing

taxation, but municipal taxes and other

surcharges are still in effect.

Companies investing in underdeveloped areas

or infrastructure development are eligible for

a tax holiday.

India has bilateral taxation treaties with 78

countries.


Date Event

2008 26 Jan Republic Day 21 Mar Good Friday 14 Apr Ambedkar Jayanti 1 May Maharashtra Day 15 Aug Independence Day 2 Oct Gandhi Jayanthi 25 Dec Christmas Day

Source: Bloomberg

Information sources

Reserve Bank of India www.rbi.org.in Ministry of Finance finmin.nic.in The Associated Chambers of Commerce and Industry of India

www.assocham.org

Reuters Fixing page RBIB Bloomberg Fixing page APF1<go>

21


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HSBC opened its first Indonesian office in Jakarta

in 1884, and expanded its operation to Surabaya

in 1896. HSBC offers a broad range of banking

and financial services, tailored to meet the wide

spectrum of needs of multinational corporations,

local businesses and individual Indonesians.

These include custody and clearing services,

institutional banking, global payments and cash

management, investment banking, trade services,

treasury, and capital markets. HSBC is active in

Indonesian markets from trading floors in Jakarta,

Hong Kong, London and New York, offering the

following products:

Spot FX7

Non-deliverable forwards out to 1 year




Local bonds and money market instruments

7 Spot FX is only available onshore. Non-residents may only transfer funds in exceptional circumstances

Spot

The IDR is a non-deliverable, freely floating

currency. However, Bank Indonesia (BI),

Indonesia’s central bank, occasionally intervenes

to curb excessive market volatility.

Forwards/FX swaps

Offshore, the IDR is traded on a non-deliverable

forward basis. There is an onshore forward market

where participants are free to buy IDR.

Documentary proof is required for buying foreign

currency if the amount exceeds IDR100m. Non-

residents are allowed to sell USD forwards,

however, supporting documentation is required.

Options

Onshore currency options are now available.

Offshore, HSBC can quote non-deliverable

options out to 5 years and any long tenors will be

considered on a case by case basis.





Indonesian rupiah (IDR)

Bank Indonesia (BI), the central bank of the Republic of

Indonesia, operates a managed floating currency regime

Offshore, the rupiah is only tradable on a non-deliverable basis

The offshore NDF market is moderately liquid with an estimated

daily turnover of USD500m

22


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Onshore, cross currency swaps are allowed, but

documentation is required to sell or buy foreign

currency against rupiah. Liquidity in the local

debt market is relatively low.


Onshore average daily volume USD700m Onshore spot transaction USD2m Onshore bid/ask spread 5 pips (5 IDR) Onshore forward transaction USD300-500m Onshore forward spread 10 pips (10 IDR) Offshore average daily volume USD500m NDF transaction USD5m NDF spreads 20 pips (20 IDR) Onshore implied option volatility spread 1.0 vol for all dates Offshore implied option volatility spread 0.75 vol for all dates



The IDR is a non-deliverable, freely floating

currency.


BI occasionally intervenes to curb excessive

market volatility by transacting through major

state banks or directly with banks.

It also occasionally intervenes verbally by

directly calling the active banks to reduce

their speculative trading.

Background

Indonesia adopted a crawling peg regime in

1986. The value of the IDR was monitored

against a basket of the currencies of

Indonesia’s main trading partners.

Under the crawling peg regime, the IDR

underwent a managed depreciation at an

average annual rate of about 4% versus the

USD for the five years before 1997, until it

was floated during the Asian crisis.

On 19 January 2001, Bank Indonesia (BI)

announced that a new rule would be enforced

to prohibit onshore banks from lending to

non-resident accounts or any IDR transfers to

offshore accounts.

Although not explicitly stated, this meant that

offshore trading in IDR would no longer be

allowed. The IDR thus became a non-

deliverable currency.

BI reaffirmed that the spirit of the regulations

was to mitigate IDR volatility by eliminating

its availability overseas, and that it had no

intention of moving away from the free-

floating exchange rate system or introducing

capital controls.

Fixing mechanism

Market opens 9am; Lunch 12-2pm; Market

closes 5pm.

The IDR fix is taken 2 days prior to value and

is the rate at 10am Jakarta time as per average

polling conducted by the association of banks

in Singapore using contributing banks’ prices.

The fixing rate is published on Reuters's page

ABSIRFIX01 or on Telerate page ‘50157’.

Both Singapore and Jakarta holidays apply.




Source: HSBC Notes: Times are based on Jakarta local time = GMT +7 hours

23


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E.g. to trade off the fix for value 28 April,

orders must be passed before 10.30am on 26

April.

Indonesia cut expires 11am HK.


All offshore counterparties, who wish to deal

in the onshore FX market, should provide the

supporting documentation of their economic

activity in Indonesia to BI. International

transactions and transfers have specific

limitations (see Table 1).

IDR is not allowed to be transferred out of

Indonesia.

All foreign exchange transactions between an

onshore entity and an offshore counterparty

must be reported to BI.

Both residents and non-residents may hold

foreign currency accounts in Indonesia.

Rupiah may be transferred from residents to

non-residents within Indonesia for amounts

up to IDR500m without documentation.

However, in the case of the non-resident

party, he/she must state the reason for the

transfer.

For any incoming/outgoing amount above

USD10,000 or equivalent, both parties must

advise the bank as to why the transaction is

required. Information is reported to BI on a bulk

no-name basis for statistical purposes only.

Margin trading of foreign currency against

IDR is strictly prohibited in the onshore

market.

Derivative transactions

Banks are prohibited from conducting margin

trading in foreign currency against the rupiah

for derivative transactions, whether for their

own account of for the account of customers.

However, margin trading in foreign currency

against foreign currencies is allowed, but

subject to conditions stated in BI regulation

No. 7/31/PBI/2005, article 4.

Table 1: For transaction values above IDR500m, the following documents are required

Transactions Documentary proof required

1. Payments related to acquisition of direct investment: Dividend payments Copy of shareholders’ meeting results Direct investments Copy of sale-and-purchase contract

2. Payments related to transactions of IDR securities/valuable paper issued by Indonesian entity:

Sales and purchases of securities Copy of sale/purchase confirmation from broker or other authorised party

Dividend payments Copy of dividend payment confirmation from issuing company Interest payments for bonds and other securities Copy of payment notification from issuer of bond or other securities SBI transactions Copy of BDS or equivalent proof

3. Payments related to offshore borrowings in IDR (including debt restructuring)

Copy of credit agreement

4. Opening of import D/C at onshore banks Copy of import documents

5. Opening of local D/C (SKBDN) Copy of purchasing documents

6. A) Purchases of goods and services in Indonesia Copy of binding documents or sale/purchase invoices B) Purchases and sales of goods and services in Indonesia

7. Costs of living for foreigners in Indonesia Copy of binding documents invoices

Source: HSBC

24


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Onshore-onshore

Onshore entities are free to access the local

spot and forward markets without supporting

documents (Table 1).

Currency accounts in all major trading

currencies are available from banks licensed to

deal in foreign currencies, with no restrictions

on foreign currencies held by non-residents. If

they receive domestic currency (IDR), they

need to show supporting documentation or

stated purpose of the transactions depending

on the amounts received.

Offshore-onshore

BI rules allow foreign investors to buy IDR as

long as they show proof of investment in

Indonesia.

Offshore entities are required to provide proof

of underlying economic activity in order to

buy and sell IDR versus USD FX spot, or

through forward contracts.

In all instances, IDR-related FX deals must be

transacted with onshore banks, and any IDR

payable to counterparties must be credited to

an onshore account.

Local banks are prohibited from entering into

the following types of transactions with non-

residents:

Extending credit in IDR or foreign

currencies, unless through certain retail

consumer loans

Granting overdraft facilities, including

temporary and intra-day overdrafts

(however, see below)

Placing IDR funds with non-residents,

including IDR transfers to banks offshore

Purchasing securities in IDR issued by

non-residents

Inter-office transactions in IDR

Table 3: For IDR transfers

IDR TO IDR FROM

Resident with a/c at local bank

Foreigner with a/c at local bank

Resident with a/c at offshore bank

Foreigner with a/c at offshore Bank

Resident with a/c at local bank Permitted 1,2,3,4,5,6A,7 Prohibited Prohibited Foreigner with a/c at local Bank Permitted 1,2,6B,7 Prohibited Prohibited Resident with a/c at offshore bank Permitted 1,2,3,4,5,6A,7 Prohibited Prohibited Foreigner with a/c at offshore bank Permitted 1,2,6B,7 Prohibited Prohibited

Note: Permitted transactions types as referred to in Table 1. Source: HSBC

Table 2: Allowable transactions for spot and forward trades

Transaction type __________________ Spot___________________ ________ Forward__________ __________ Swap __________ Buy IDR Sell IDR Buy IDR Sell IDR S/B IDR B/S IDR Sell FCY Buy FCY Sell FCY Buy FCY B/S FCY S/B FCY

Offshore non-bank with local bank 1,2,3,4,5,6A Permitted 1,2,3,4,5* 1,2,3,4,5* 1,2,3,4,5* 1,2,3,4,5* IDR funds not staying for more

than 2 business days Min tenor 3M Min tenor 3M

Offshore non-bank with offshore bank Beyond Bank Indonesia control, but can not be settled onshore if dealt.

Offshore bank with local bank 1,2,3,4,5,6A Permitted 1,2,3, 4,5* 1,2,3,4,5* 1,2,3,4,5* 1,2,3,4,5* IDR funds not staying for more

than 2 business days Min tenor 3M Min tenor 3M

Offshore bank with offshore bank Beyond Bank Indonesia control, but can not be settled onshore if dealt.

Resident with local bank Permitted Permitted Permitted Permitted Permitted Permitted

Note: * = SBI and interest/coupon/dividend of an investment are not eligible for hedging. Hedging L/C or SKBDN can be less than 3 months. Permitted transactions types as referred to in Table 1. Source: HSBC

25


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Equity participation in IDR with non-

residents

Document verification is the responsibility of

remitting banks and receiving banks.

Onshore-offshore

Loans from abroad to state-owned companies

and foreign investment companies need BI

approval in advance.

All other foreign borrowings must be reported

to the Finance Ministry and BI.

Repayment of approved loans is unrestricted,

subject to special requirements for certain

types of offshore loans.

Offshore-offshore

The offshore market is limited to the NDF

market.

Repatriation

Capital inflows are subject to approval,

whereas there are no restrictions or limitations

on repatriation.

Taxation8 The majority of foreign investment in

Indonesia is supervised by the Investment Co-

ordination Board, Baden Koodinasi

Penanaman Modal (BKPM). Some industries

are considered off-limits to foreign investors,

while some require special approval.

Investments that are considered to be in the

national interest are generally encouraged. At

present, foreigners are not yet allowed 100%

ownership of most businesses, although this

will change if pending legislation is passed.

Indonesia offers several industry-specific

incentives and regional incentives, mostly

geared towards the development of the outer

islands.


The corporate tax rates are as follows:

10% on the first IDR50m

15% on the next IDR50m

30% on income in excess of IDR100m

All payments made overseas are subject to a

20% withholding tax, which may be reduced

by tax treaties.

Branch offices are generally not permitted in

Indonesia.


Date Event

2008 1 Jan New Year’s day 10 Jan Islamic New Year 7 Feb Chinese New Year 7 Mar Saka New Year 20 Mar Prophet Muhammad’s Birthday 21 Mar Good Friday 1 May Ascension Day of Jesus 20 May Waisak day 30 Jul Ascension of The Prophet

Muhammad 18 Aug Independence day 1-2 Oct Idul Fitri 8 Dec Idul Adha 25 Dec Christmas 29 Dec Islamic New Year

Note: Holidays are dependent on the Muslim Lunar Calendar and may differ from the date given Source: HSBC, Bloomberg

Information sources

Bank Indonesia www.bi.go.id Bloomberg Fixing page APF1<go> Reuters Fixing page ABSIRFIX01

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HSBC Bank Malaysia Berhad, a wholly owned

subsidiary of HSBC Holdings plc, is a licensed

onshore bank and authorised dealer in Malaysia.

HSBC offers the following products through its

onshore bank.

Onshore spot FX and forwards

FX options – ringgit and other currency pairs

Structured derivatives and investments

MYR fixed income securities

Interest rate swaps and options (IRS and IRO)

Forward rate agreements

Wealth management products

Spot

Offshore entities may access the onshore spot or

forward market for hedging MYR investments.

Forwards/FX swaps

A local forward market is available in USD/MYR

and major currency pairs. Liquidity is ample up to

6 months. Forward quotes beyond 6 months are

readily available, though they are less frequently

traded.

Options

The onshore USD/MYR currency options market

is gaining popularity, following the de-peg of the

MYR. HSBC Bank Malaysia Berhad is a leading

player offering structured zero cost USD/MYR

FX options. HSBC also offers solutions based on

exotic FX option structures to its clients to

manage their FX risks.


Onshore average daily volume USD500-800m Onshore spot transaction Via brokers: USD3m

Via Reuters :USD5m Onshore bid/ask spread 20–30 pips (0.0020 – 0.0030 MYR) Onshore forward transaction USD50 - 100m Onshore forward spread 1-6M: 3 to 20pips

(0.0003-0.0020 MYR) Onshore implied option vol spread 0.4 vol for all dates



The MYR operates in a managed float with its

value being determined by economic

fundamentals. Bank Negara Malaysia (BNM),

Malaysia’s central bank, monitors the

exchange rate against a currency basket to

Malaysian ringgit (MYR)

The Bank Negara Malaysia (BNM), Malaysia’s central bank,

maintains the MYR in a managed float

The MYR is not convertible outside of Malaysia

The central bank monitors the exchange rate against a currency

basket to ensure that the exchange rate remains close to its fair

value

27


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ensure that the exchange rate remains close to

its fair value. Promoting stability of the

exchange rate is a primary objective of policy.

The central bank ensures stability of the

currency by maintaining the value of the

MYR against a trade-weighted index of

Malaysia’s major trading partners.

Background

Foreign exchange activities are governed by

the Exchange Control Act of 1953 and

implemented through Exchange Control of

Malaysia (ECM) notices issued by BNM.

Prior to 1 September 1998, the MYR operated

on a floating exchange rate mechanism.

From 1 September 1998 to 21 July 2005, the

MYR was fixed at an exchange rate of

MYR3.80 to one US Dollar.

On 21 July 2005, the USD/MYR peg was

removed and Malaysia adopted a managed

float for the USD/MYR exchange rate. This

occurred just hours after the revaluation of the

RMB.

Malaysia has taken the opportunity to

sequentially deregulate and liberalise the

financial system against the background of

strengthened economic fundamentals and

financial systems.

Fixing mechanism

Reuters: NEGASN can be used for market

reference spot rates.

Bloomberg: BNMF6 can be used for market

reference spot rates.


Onshore-onshore

Spot

Commercial banks and money changers are

licensed under the Exchange Control Act to

buy and sell foreign currency.


holding foreign currency locally.

All transactions of foreign exchange for the

purpose of purchases and sales of MYR must

be transacted through authorised dealers.

HSBC Bank Malaysia Berhad is an authorised

dealer.

Resident exporters are allowed to pay another

resident company in foreign currency for

settlement of goods and services. The foreign

currency funds used for such settlements shall

be sourced from the resident payer’s foreign

exchange account.

All invoicing and settlements of exports and

imports with offshore counterparties must be

made in foreign currency. Supporting

documents are required.

Resident exporters may open foreign currency

accounts onshore to retain any amount of

export proceeds

A resident company or individual with no

domestic MYR credit facility is free to invest

abroad. The investment may be made through

the conversion of MYR or from foreign




Source: HSBC Notes: Times are Kuala Lumpur local time = GMT + 8 hours

28


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currency funds retained domestically or

offshore.

A resident with a domestic MYR credit

facility may convert MYR into foreign

currency up to the following limits for

overseas investments, including extension of

foreign currency credit facilities to non-

residents:

Up to MYR50m per calendar year by the

company on a per corporate group basis

Up to MYR1,000,000 per calendar year

by an individual

Non-residents may open MYR “External

Accounts” onshore.


Non-bank counterparties, such as importers

and exporters, can use currency options to

manage their foreign exchange risk.

All forward contracts must be supported by

underlying trade/service/commercial

transactions. The purchase/sale of FX forward

contracts must correspond to an underlying

trade–related transaction.

Forwards between banks and non-bank

counterparties (i.e. corporate counterparties)

require a firm underlying foreign currency

commitment from the non-bank counterparty.

Residents are allowed to enter into hedging

arrangements on anticipatory current account

transactions, based on the value of export

receipts and import payments of the preceding

12 months (with prior registration with BNM

for amounts > MYR50m). This also consists

of any committed capital account payments,

including loan repayments and equity hedges

on foreign currency exposures of approved

overseas investments.

Forward sales of foreign currency receivables,

other than export proceeds, can be executed

up to the tenor of the underlying transaction

as long as a firm underlying commitment to

receive such currency supports the

transaction.

Offshore-onshore/onshore-offshore

A resident company is allowed to obtain

foreign currency credit facilities up to the

equivalent of MYR100m in aggregate on a

corporate group basis from licensed onshore

banks, licensed merchant banks and non-

residents.

A resident individual is allowed to obtain

foreign currency credit facilities up to an

equivalent of MYR10m in aggregate from

licensed onshore banks, licensed merchant

banks and non-residents.

Onshore licensed banks may extend MYR

intra-day and overnight overdraft facilities up

to 2 working days, with no rollover option to

non-resident stockbrokers or custodian banks.

The facilities are strictly for financing funding

gaps that occur due to settlement timing

mismatches, unforeseen or

inadvertent/technical administration errors or

time-zone delays relating to the settlement of

trades on the Bursa Malaysia and settlement

of MYR instruments via RENTAS (Real

Time Electronic Transfer of Funds and

Securities System). The use of the facility to

finance direct purchase of securities is

prohibited.

Onshore licensed banks (HSBC Bank

Malaysia Berhad is an onshore licensed bank)

and approved merchant banks are allowed to

enter into forward contracts with non-

residents as follows:

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To enter into foreign currency swap

arrangements not exceeding three

working days with non-resident

intermediaries to cover payment for

shares listed in Bursa Malaysia purchased

by the non-resident intermediaries’

clients. Such arrangements shall be based

on a firm commitment and not on an

anticipatory basis. The maturity date of

the arrangement shall be the committed

payment date with no rollover option.

To enter into forward foreign exchange

currency purchase contracts, including

swaps, against MYR, the non resident

must be purchasing MYR assets for the

purpose of settlement and hedging. The

forward contracts can be entered into at

the point when the non-resident commits

to purchase the MYR assets.

To enter into forward foreign currency

sale contracts against MYR with non-

residents for the sale of MYR assets. The

forward contracts can be entered into at

the point when the non-resident commits

to sell the MYR assets. The forward

contracts can also be entered into at the

point when the non-resident holds the

MYR assets purchased after 1 April 2005,

provided the amount of MYR to be sold

(hedged) by the non-resident does not

exceed the principal amount of the

investment. Currency options can be used

as a hedging tool to manage the foreign

exchange exposure.

The rules for domestic borrowing by non-

resident controlled companies (NRCCs) were

recently fully liberalised by removing the

MYR50m limits and the 3:1 gearing ratio

requirement.

Banks are allowed to freely open foreign

currency accounts for residents and non-

residents.

Banks may open accounts in MYR known as

“external accounts” for non-residents. Non-

residents may use the MYR funds in the

“external accounts” for the following

purposes:

Purchase of foreign currency

Purchase of MYR assets in Malaysia

Payment for goods and services for own

use in Malaysia

Payment of administrative and statutory

expenses in Malaysia

The sources of funds in the MYR external

account may be from:

Sale of foreign currency

Sale of MYR assets

Income from salaries, wages, royalties,

commissions, interest, fees, rentals,

profits or dividends

Proceeds from MYR credit facilities

permitted by BNM or in accordance with

the terms and conditions of employment

MYR funds in external accounts may be

converted into foreign currency and

repatriated, or used in Malaysia for permitted

purposes.

Bank Negara Malaysia will consider, on the

merits of each case, applications by

Multilateral Development Banks (MDBs),

where Malaysia is a member, and foreign

multinational companies (MNCs), which are

not incorporated in Malaysia but have a

presence in Malaysia through subsidiaries or

related companies, to issue MYR-

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denominated bonds in Malaysia. Resident and

non-resident investors may purchase these

MYR-denominated bonds.

Non resident investors are allowed to hedge

foreign exchange and interest rate risks

arising from investments in the MDB or

MNC bonds.

The MDBs and MNCs may apply to enter

into forward contracts and interest rate swaps

with authorised dealers to hedge the foreign

exchange and interest rate risks arising from

the issuance of these bonds.

Offshore-offshore

Entities established under the Labuan

International Offshore Financial Centre

(IOFC) are treated as non-residents.

An offshore market in USD/MYR became

unavailable with the imposition of capital

controls on 1 September 1998. This

regulation is still effective.

Offshore entities in Labuan are freely allowed

to deal in foreign currency (other than

Restricted Currencies which includes MYR).

All offshore entities are allowed to maintain

external accounts with resident banks in order

to facilitate the defrayment of statutory and

administrative expenses in Malaysia.

Repatriation

Foreign direct investors are able to repatriate

their investments, including capital, profits,

dividends and interest.

Non-resident portfolio investors may

repatriate their principal and profits with the

appropriate tax certificate and dividend

declaration.

Taxation9 Resident corporations are taxed at a flat rate

of 27%. It has been proposed that the

corporate tax rate be further reduced to 26%

and 25% in 2008 and 2009 respectively.

Resident corporations with a paid–up capital

of MYR2.5m and less are taxed at tiered tax

rates.

Interest payments made to non–residents are

subject to a 15% withholding tax unless

reduced under the relevant double taxation

agreement. There are exemptions from

withholding tax on interest payments made to

non-residents in respect of certain debt

instruments.

Interest payments made by licensed banks to

non–residents are exempted from withholding

tax.

Interest paid to any individual or company not

resident in Malaysia in respect of Malaysian

government securities and ringgit-

denominated bonds, other than convertible

loan stock, approved by the Securities

Commission is exempted from income tax

(withholding tax). It was proposed in the

recent budget that non-resident investors be

exempted from withholding tax on interest

payments from Islamic securities, issued in

foreign currency and approved by the

Securities Commission. The proposed

exemption would not extend to convertible

loan stock, and will be effective from 2008

once the legislation is enacted.

There is no capital gains tax in Malaysia.


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Date Event

2008 1 Jan New Year’s Day 10 Jan First Day of Muharram 1 Feb Federal Territory Day 7-8 Feb Lunar New Year 20 Mar Prophet’s Birthday 1 May Labour Day 19 May Wesak Day 7 Jun King’s Birthday 1 Sep National Day 2-3 Oct Hari Raya Puasa 29 Oct Deepavali 9 Dec Hari Raya Haji 25 Dec Christmas Day 29 Dec First Day of Muharram

Note: Holidays may differ from the date given Source: Euromarket Day Finder

Information sources

Central Bank of Malaysia www.bnm.gov.my Securities Commission www.sc.com.my Treasury Malaysia www.treasury.gov.my Stock Exchange www.klse.com.my Bloomberg Fixing page BNMF6 Reuters Fixing page NEGARA, HSBM01

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In Mauritius, HSBC operates 11 full-service

branches as well as a Global Business Unit

(HBMU), which plays a leading role in

facilitating cross border investment activity.

HSBC offers a complete range of treasury-related

services through the branch and the Global

Business Unit. These include:

Spot and forward FX

MUR and non-MUR foreign currency options

out to 2 years and further tenors on a case by

case basis

Spot

Liquidity on the interbank market is limited as

most banks prefer to keep their excess foreign

currencies in order to service corporate or trade

related requirements.

Forwards/FX swaps

There are no active forward and FX swap

markets.

Options

HSBC can quote MUR currency options up to 2

years. Further tenors will also be considered on a

case by case basis.






Onshore average daily volume USD20m Onshore spot transaction USD1.5m Onshore bid/ask spread 50 pips (0.0050MUR) Onshore forward transaction USD0.5m Onshore forward spread 50 pips (0.0050 MUR) Offshore average daily volume USD2m Implied option vol spread 2 vol for all dates



Since 1 July 1994, a freely floating exchange

rate regime has been in place. The MUR is

freely tradable and convertible, with no

exchange controls.

Mauritian rupee (MUR)

The Bank of Mauritius (BoM) allows the MUR to be freely traded

and convertible, with no exchange controls

There are no restrictions on transacting MUR spot, forward and

currency options

Interbank transactions are limited as most banks prefer to keep

their excess foreign currencies in order to service corporate or

trade related requirements

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Short-term repos and reverse repos have been

conducted by the Bank of Mauritius (BoM) –

the central bank - since 15 December 1999

through an auction process depending on

market liquidity conditions.

In December 2006, the BoM introduced a

“Key Repo rate” as the new market signalling

rate to replace the previous Lombard Rate.

BoM would inject short term liquidity at 50

bps above the Key Repo rate and mop up at

50 bps below the Key Repo rate.

BoM usually intervenes intermittently in the

market to stabilise the MUR.

Local MUR restrictions

_Onshore-onshore bank_ Offshore-offshore banks Spot Forward/

swap Option Spot Forward/

swap Option

MUR Yes 1 year* Yes** Yes Yes Yes

Notes: * = Mainly bid-side-only due to market conditions; ** = Restricted volume Source: HSBC

Background

Foreign currency inflows are primarily

derived from textile, tourism and sugar export

industries. The market is currently short of

foreign currency and indications are that it is

likely to remain so for some time. A managed

floating exchange rate regime was in place

prior to 1 July 1994.

The MUR was devalued twice – in 1979 and

in 1982.

The USD/MUR exchange rate is mainly

determined by forces of local demand and

supply – i.e. by commercial banks. Currently,

demand for foreign currency largely exceeds

supply for various economic and structural

reasons.

According to the Foreign Exchange Dealers

Act of 1995, a foreign exchange dealer’s

overnight exposure is restricted to a

maximum percentage of net owned funds.

Since 7 July 2005, banks have been required

to observe a daily overall foreign exchange

limit not exceeding 30% of their Tier 1 or

permanent capital. All domestic banks are

required to submit a daily return on their

foreign exchange transactions in all

currencies as well as their overall foreign

exchange exposure. The banks’ overall

foreign exchange position is monitored on a

daily basis.

Overnight exposure of a money-changer may

not exceed 75% of net owned funds.


Foreign exchange transactions are executed

by banking and non-banking institutions

which hold a dealing licence issued by BoM.

No official exchange rate is published.

Indicative rates are published daily by

commercial banks.

MUR currency options have recently been

permitted with restricted volumes against

trade related exposures only.




Source: HSBC Notes: Times are Mauritius local time = GMT + 8 hours

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For onshore entities and Mauritian residents

there are no restrictions on transacting MUR

spot, forward and non-MUR currency

options.

Mauritian residents are allowed to hold

foreign currency accounts with banks in

Mauritius as well as overseas.

Non-residents may hold MUR or any foreign

currency account without any restriction.

The offshore banking sector has been merged

with the domestic sector and banks formerly

considered as offshore banks are now

permitted to engage in domestic banking

activity.

Repatriation

There are no limitations on repatriation.

Taxation There is no withholding tax.


Date Event

2008 1 Jan New Year’s Day 2 Jan New Year’s Holiday 1 Feb Thaipoosam Cavadee 16 Feb Mahashivratri 12 Mar National Day 20 Mar Ougadi 1 May Labour Day

Source: Bloomberg, HSBC

Information sources

Bank of Mauritius http://bom.intnet.mu

Portal of Republic

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HSBC commenced operations in Pakistan in

1982. Today, HSBC maintains a total of four

branches in Pakistan, with two branches in

Karachi and one each in Lahore and Islamabad.

HSBC is one of the most active players in the

local foreign exchange market, quoting

competitive prices in USD/PKR spot as well as

forwards. Onshore, HSBC provides a full range

of products including:

Spot

Forward outrights

Option forwards

Forward/ forward discounting

Foreign currency trade loans

Cross currency hedging

Spot

The PKR is partially convertible and onshore FX

spot is available with documentary proof.

Forwards

The onshore forward market is accessible for

hedging trade payables and receivables of up to

12 months with supporting documentation.

Options

The SBP does not authorize the free trading of

PKR FX options. However, HSBC will consider

FX options on a case by case basis.






Onshore average daily volume USD435m Onshore spot transaction USD2m Onshore bid/ask spread 2-3 pips (0.02-0.03 PKR) Onshore forward transaction USD325m Onshore forward spread 2-3 pips (0.02 – 0.03 PKR) Offshore Implied option volatility spread 4.0 vol



The PKR is a partially convertible and

moderately managed floating currency.


The SBP intervenes in the interbank market

by buying or selling USD/PKR in value spot

or in outright forward deals to stabilise PKR

spot, whenever it deems appropriate.

Pakistani rupee (PKR)

The State Bank of Pakistan (SBP) operates a managed floating

currency regime

The PKR is partially convertible and non-deliverable

The SBP intervenes in the interbank market though spot or in

outright forward deals to stabilise the currency

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PKR liquidity in the system is managed by

the SBP through open-market operations

(OMOs) from time to time.


Remittance of royalties/fees

The SBP allows remittance of royalties or

franchise/technical service fees/charges in the

financial sector – i.e. from commercial banks

and non-bank financial institutions (NBFIs),

including leasing/modaraba companies and

investment banks, to their foreign partners in

respect of their branded financial

products/services within the areas of their

authorised business. One-time, lump sum, up-

front royalties or franchise/technical fees

should not exceed USD500,000.

SBP allows Pakistani domestic residents to

remit funds to universities for receiving

foreign education.

Remittance by foreign funds

The SBP permits remittances of divested

proceeds by foreign investors who maintain

custodian accounts with different financial

institutions.

Regulation

Onshore-onshore

Inter-bank trading in spot/forwards is allowed

by the SBP but banks are required to remain

within the “net-open limit” set by the central

bank.

There is no upward limit on USD nostros on

banks.

Banks are required to buy all oil related

foreign exchange directly from SBP instead

of from the inter-bank market.

Onshore entities can deal in PKR spot and

forwards onshore, but each transaction must

be backed by underlying trade transactions.

Onshore exporters are permitted to keep 10%

of their proceeds in foreign currency accounts

onshore. They must, however, convert the

remainder into PKR.

Forward-to-forward discounting of trade bills

is permitted.

Forward market

The local forward market is accessible for

hedging trade payables and receivables of up

to 12 months. However, importers are not

allowed to cover their forward exposures on

contracts (import collections/open account

payments), although SBP has granted some

exceptions.

Importers are authorized to cover their

imports through the forward market against

Letters of Credit (LCs).

Foreign currency accounts

Pakistani residents and expatriates

working/living in Pakistan may hold foreign

currency accounts with banks in Pakistan in

major currencies (USD, GBP, EUR and JPY).




Source: HSBC Notes: Times are based on Pakistan local time = GMT +5 hours

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Prepayment of foreign private loans

The SBP allows corporate borrowers to pre-

pay foreign private loans (other than

government-guaranteed loans) on a case-by-

case basis. Corporates, however, need to

complete the remittance formalities before

execution.

Travel related foreign exchange

The maximum amount of travel related

foreign exchange that a resident can buy (in a

calendar year) is USD2,100.

Kerb market

In Pakistan, there is a foreign exchange

market that runs parallel to the inter-bank

market, commonly known as the kerb market.

Most kerb market transactions are cash based.

All individuals and companies can freely buy

and sell USD and other frequently traded

currencies in the kerb market without any

restriction. However, companies operating in

the kerb market are also monitored by the

SBP.

Typically the USD trades at a 0.50% - 1.00%

premium over the prevalent rate in the inter-

bank FX market.

Offshore-onshore PKR is not a fully convertible currency.

Offshore entities may buy PKR spot to meet

their PKR obligations. Offshore companies

can not sell PKR against foreign currencies

without prior approval from SBP.

Non-resident Pakistanis and foreign nationals

can remit foreign exchange into Pakistan in

their PKR accounts. However, the PKR in

these accounts is not re-convertible into

foreign exchange.

Market deregulation and introduction of

derivative products:

SBP now allows banks to offer derivative

products to their customers on a case-to-case

basis. The SBP is also granting Authorized

Derivative Dealer (ADD) licenses to banks,

which authorizes them to offer derivative

products to end-users as well as other inter-

bank players with no prior approval from

SBP.

The derivative products available in Pakistan

are PKR interest rate swaps, PKR forward

rate agreements and G-5 currency options.

Banks are required to cover their exposures

on G-5 currency options on a back-to-back

basis from other banks.

Sales and trading of PKR FX derivatives is

not authorized by SBP.


Date Event

2008 1-2 Jan Eid Al-Adha 27-28 Jan Muharram 5 Feb Kashmir Day 23 Mar Pakistan Day 31 Mar Eid I- Milad-Un-Nabi 1 May May Day 14 Aug Independence day 11-13 Oct Eid Al-Fitr 9 Nov Allama Iqbal day 18-19 Dec Eid Al-Adha 25 Dec Birthday of Quaid-E-Azam 26 Dec Christian holiday

Source: HSBC

Information sources

State Bank of Pakistan www.sbp.org.pk Govt. of Pakistan Statistics Division www.statpak.gov.pk Securities and Exchange Commission of Pakistan

www.secp.gov.pk

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The HSBC Group is represented in the Philippines

through The Hong Kong and Shanghai Banking

Corporation Limited and its subsidiary, the locally

incorporated HSBC Savings Bank (Philippines)

Inc. HSBC opened its first branch in the

Philippines in Binondo in November 1875. HSBC

in the Philippines provides a comprehensive range

of financial services: personal, commercial,

corporate, trade services, cash management,

treasury and capital markets services, trust

services, and custody services. HSBC is actively

involved in Philippine markets from trading floors

in Manila, New York, London and Hong Kong

offering the following suite of products:

Spot FX10

Onshore forwards out to 3 years/swaps out to

10 years11

10 Offshore, HSBC can only sell the currency if the investment is duly approved and registered through the BSRD (Bangko Sentral ng Pilipinas Registration Document) department of the BSP. Further proof of divestment documents and recipient information will also be necessary.

Offshore non-deliverable forwards and

swaps12

Local bonds and money market products

Onshore deliverable and offshore non-

deliverable options out to 5 years and further


Spot

The onshore spot market opens at 9am, closes for

lunch from 12 - 2.30pm and closes at 4pm. Thirty

local and foreign commercial banks are members

of the Philippine Dealing System (PDS). The PDS

is an electronic-based network and is connected

by communication systems provided by Reuters.

The reference exchange rate is determined by the

weighted average of all FX transactions on the

PDS during trading hours.

11 HSBC can trade with offshore counterparties provided that supporting documents are presented on or before value/settlement date under current FX regulations, and that maturity dates match. Prior approval is required for FX swaps with offshore counterparties.

12 We cannot trade offshore NDF instruments with onshore counterparties including offshore subsidiaries

Philippine peso (PHP)

The Bangko Sentral ng Pilipinas (BSP) maintains a free float

currency regime but will intervene in the market to defend against

what it considers to be speculative movements in the currency

In the offshore market, Philippine peso (PHP) is traded on a non-

deliverable forward basis

Commercial banks are allowed to engage in spot, outright

forward, and swap transactions in PHP and other third currency

transactions

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Forwards/FX swaps

In the offshore market, the Philippine peso is most

commonly traded as dollar settled non-deliverable

forwards (NDF). Turnover in the Philippine NDF

market is low compared to other Asian currencies

with an estimated daily volume of USD300m.

Although tenors are available out to 10 years, the

best liquidity is in tenors of 12 months or less.

Options

The onshore FX options market has limited

liquidity with no active broker market. However,

HSBC offers both onshore and offshore FX options

to 5 years and further on a case by case basis.






HSBC is very active in the domestic swaps and

bond markets, while offering non-deliverable

swaps offshore.



Onshore average daily volume USD550m Onshore spot transaction USD1m Onshore bid/ask spread 3 pips (0.03 PHP) Onshore forward transaction USD300m Onshore forward spread 1 month forward 1.5 pips (0.015 PHP) 2 months forward 2.5 pips (0.025 PHP) 3 months forward 3.5 pips (0.035 PHP) 6 months forward 6 pips (0.06 PHP) 9 months forward 12 pips (0.12 PHP) 12 months forward 15-18 pips (0.15-.18 PHP) Offshore average daily volume USD150m NDF transaction USD5-10m NDF spreads 10 pips (0.10 PHP) Onshore implied option volatility spread 0.75 vol Offshore implied option volatility spread 0.5 vol


FX framework The Bangko Sentral ng Pilipinas (BSP), the

central bank of the Philippines, is responsible for

formulating and implementing monetary policy

and foreign exchange controls. Since 1992, the

BSP has maintained a free float currency regime

where the value of the Philippine peso is

determined by market forces. However, the BSP

will intervene in the market to defend against

what it considers to be speculative movements in

the currency.

The Philippine government has loosened some of

its currency controls over the past few years.

Despite the recent moves toward liberalisation, the

peso remains only partially convertible. The ability

to transfer capital to and from the Philippines is

largely dependent on the type of investment and

the investment’s registration status with the BSP.

There are numerous government agencies

overseeing foreign investments in the Philippines.

The agencies are the Board of Investment (BOI),

the Securities and Exchange Commission (SEC),

the Bureau of Trade Regulations and Consumer

Protection (BTRCP) and the BSP. Prospective

investors are advised to contact these agencies to

officially register their investments. The BOI is

the agency primarily responsible for issuing

investment incentives, of which there are several.

General incentives are offered to companies that

increase Philippine productivity, create significant

employment and/or export goods. Incentives are

outlined in the Investment Priorities Plan (IPP).

Contact the BOI for the most recent edition of the

IPP.




Notes: Times based on Manila local time = GMT + 8 hours Source: HSBC

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Exchange rate mechanism

The Philippines has a free float exchange rate

policy. This policy was adopted in August

1992.


BSP manages volatility in the exchange rate

using a range of measures, including

monetary measures, increasing/decreasing

banks’ reserve requirements, and tightening

up on the documentary requirements for sales

of foreign currency to institutional/corporate

clients.

Fixing mechanism

The PHP fix is a weighted average spot rate

of that morning's trades in the onshore spot

market done prior to 11.30am, one day prior

to value date (e.g. Value 28 April; fix 27

April) as reported by the Philippine Dealing

System and published on Reuters page

‘PDSPESO.’

E.g. to trade off of the fix value 28 April -

orders must be passed before 9am (local time)

on 27 April.

Manila cut expires 11.30am HK time.


Onshore-onshore

A BSRD (Bangko Sentral Registration

Document) is required to trade the right-hand

side of spot (i.e. to sell PHP spot onshore).

Using PHP to buy foreign currency from the

banking system is subject to submission of

the proper documentation.

Residents may purchase up to USD10,000 or

its equivalent in foreign currency every day

without supporting documentation, except if

the purpose is to service trade obligations,

loan repayments or investments. Full

supporting documentation is required for such

transactions, regardless of the amount

purchased. Moreover, FX forward and swap

transactions require submission of supporting

documents on the deal date as mandated by

the BSP.

Onshore transactions may require BSP

approval and must be conducted via

authorised banks.

Residents may hold foreign currency accounts

onshore.

Offshore-onshore

Non-residents are free to sell foreign currency

for Philippine peso onshore.

Documentary proof is required by offshore

counterparties as follows:

Documentary requirements for various transactions

Transaction Supporting documents

1. Sale of Equity Investment

Publicly listed: broker’s sales invoice, central bank registration (BSRD), notarised application to purchase foreign exchange.

Not publicly listed: deed of sale, central bank registration (BSRD), proof of tax payment, notarised application to purchase foreign exchange, detailed computation using the central bank prescribed format, audited financial statements, clearance from the BSP for banks; Insurance Commission for insurance companies; and Department of Energy for oil companies.

2. Sale of Government Securities

Broker’s sales invoice, central bank registration (BSRD), notarised application to purchase foreign exchange.

3. PHP Time Deposit Maturity

Central bank registration (BSRD), deposit certificate, notarised application to purchase foreign exchange. Deposits shall have a maturity of at least 90 days.

Source: HSBC

Offshore counterparties must receive prior

approval from BSP to engage in FX swaps

and NDFs with onshore banks.

Non-residents who invest in the local stock or

bond markets are required to finance their

transactions either through an inward FX

41


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remittance or a withdrawal against foreign-

currency accounts.

The BSP does regulate foreign currency

denominated loans and some borrowing from

overseas.

Non-residents may hold local or foreign

currency accounts onshore.

Repatriation

Exchange control regulations in the

Philippines require all foreign investments to

register with the BSP, if repatriation of

subsequent investment proceeds is to be

sourced from the banking system.

Effective from 26 January 2000, the BSP

imposed a minimum holding period of 90

days for foreign funds placed in peso time

deposits to be eligible for registration and

eventual repatriation.

Other forms of investment – e.g. foreign

direct investment, government securities,

other fixed-income investment and equities –

are not subject to the lock-up period.

Under the “Fast Track System”, with shares

purchased after 1 June 1991, registration is

done by the custodian bank, which issues a

BSRD on behalf of the BSP. (Repatriation of

related dividend income on sales of shares

purchased before 1 June 1991 is subject to

BSP approval).

USD investments may be brought back and

repatriated in full, provided the inward

remittance was properly registered by the

receiving bank in the Philippines, as

evidenced by a BSRD.

Onshore-offshore

All public-sector and private-sector

guaranteed obligations from foreign creditors,

offshore banking units (OBUs) and foreign

currency deposit units (FCDUs) require BSP

approval.

Offshore-offshore

In the offshore market, banks can only sell

pesos, and therefore the Philippine peso

trades on a non-deliverable forward (NDF)

basis.

Taxation13 The base corporate tax rate is 35%.


Date Event

2008 1 Jan New Year’s Day 20 Mar Holy Thursday 21 Mar Good Friday 9 Apr Day of Valour 1 May Labour Day 12 Jun Independence Day 26 Aug National Heroes Day 1 Nov All Saints Day 30 Nov Bonifacio Day 25 Dec Christmas Day 30 Dec Rizal Day


Information sources

Central Bank of the Philippines www.bsp.gov.ph Board of Investment www.boi.gov.ph Department of Finance www.dof.gov.ph Reuters PDSPESO Bloomberg WCV PHP

13 HSBC is not qualified to give tax and legal advice. Specific tax and legal questions should be directed to your appropriate advisor

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One of the earliest banks to establish in Singapore

(1877), HSBC is today a prominent player in

Singapore's banking sector and offers a broad

range of banking and financial services tailored to

meet a wide spectrum of needs, from those of

multi-national corporations to local businesses

and individual Singaporeans. HSBC is active in

Singapore markets from trading floors in

Singapore, Hong Kong, London and New York,

offering the following suite of products.

Spot FX


FX options out to 5 years14 and further tenors

on a case by case basis.

Cross-currency swaps out to 10 years

14 Provided FX hedging is not done for financial assets denominated in local currency, including property

Spot

The SGD is fully convertible currency with

excellent liquidity in the spot and forward

markets. Spot is tradable 24hrs a day without any

restriction. It has an estimated average daily

turnover of USD3bn.

Forwards/FX swaps

Liquidity in the forward market is excellent with

an estimated daily turnover of up to USD3bn. The

most liquid tenors are one year or less. Outright

forwards are not subject to any restrictions.

Options

Onshore options on the Singapore dollar are only

allowed in association with a legitimate

underlying transaction. Offshore, the market is

freely tradeable.





Singapore dollar (SGD)

The Monetary Authority of Singapore (MAS) conducts an

exchange rate regime where the currency is managed against a

banded crawling trade weighted basket of currencies

The Singapore dollar is fully convertible with excellent liquidity in

the spot and forward markets

The MAS executes monetary policy primarily through adjustment

of the width, midpoint and slope of the crawling band

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Onshore average daily volume USD3bn Onshore spot transaction USD5m Onshore bid/ask spread 5 pips (0.0005 SGD) Onshore forward transaction USD50m Onshore forward spread 5 pips (0.0005 SGD) out to 1 year Implied option volatility spread 0.3 vol


FX framework The Monetary Authority of Singapore (MAS)

functions as Singapore’s central bank. Its primary

function is to limit inflation, preferably through

the use of the foreign exchange rate rather than

interest rates, as the primary tool. As a result,

Singapore maintains a managed float currency

regime and the Singapore dollar’s rate is managed

against a trade weighted basket of currencies.


The MAS manages the SGD against a trade-

weighted basket of the currencies of

Singapore’s major trading partners and

competitors, and maintains it within an

undisclosed crawling target band.

The central parity rate around which the

Singapore dollar is allowed to float was last

reset in July 2003 by the MAS. The width of

the band was last reset in January 2002 and

the slope of the policy band was recently

increased in October 2007.

Although there is no official band width, the

MAS generally limits movements to 1.5%

either side of the parity rate.

Exchange rate policy is established at semi-

annual meetings in April and October.


The MAS may intervene in the FX market to

relieve SGD volatility, especially when it falls

outside the targeted bands.

Background

Before 1972, the SGD was pegged to the

GBP. When the GBP was floated in 1972,

however, the MAS pegged the SGD to the

USD.

In June 1973, following the USD devaluation

earlier that year, the MAS decided to float the

SGD.

Since 1981, Singapore’s monetary policy has

centred on management of the exchange rate.

The primary monetary objective has been to

promote price stability as a sound basis for

economic growth.


There are no foreign exchange controls in

Singapore.

There are no restrictions on the repatriation of

capital.

There are no restrictions on remitting profits

or dividends, although documents should be

readily available.




Source: HSBC Notes: Times are based on Singapore local time = GMT + 8 hours

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Regulations

Singapore eliminated most controls on

foreign exchange transactions in 1978. The

only remaining restrictions pertain to non-

residents financing offshore projects with

Singapore dollars.

Non-residents must convert proceeds from

onshore financing activities to foreign

currency if those funds are to be used

offshore. Credit facilities extended to non-

resident financial institutions are limited to

SGD5m.

Both residents and non-residents may borrow

internationally.

Non-residents may hold local or foreign

currency accounts onshore.

For residents, there are no restrictions on

SGD spot, forward or currency options.

Provisions under MAS Notice 757 (released

May 2004)

SGD credit facilities include loans, contingent

credit lines and FX swaps involving a spot

sale of SGD to a non-resident in the first leg.

Banks may lend SGD to non-resident

financial institutions (NRFI) for any purpose,

whether in Singapore or overseas, provided

that the aggregate SGD credit facilities do not

exceed SGD5m per entity15. The limit must

not be circumvented by combining spot and

forward transactions.

Individuals and non-financial entities,

including corporate treasury centres, are not

subjected to the restrictions in this section.

For amounts exceeding SGD5m per entity, if

the SGD proceeds are to be used outside

15 For NRFI seeking to obtain SGD credit facilities, each subsidiary is considered a separate entity, while the head office and all overseas branches are collectively regarded as one entity.

Singapore, they must be swapped or

converted into foreign currency upon

drawdown.

Banks may extend temporary SGD overdrafts

of any amount to vostro accounts of non-

resident financial institutions for the purpose

of preventing settlement failures. However,

banks must take reasonable steps to ensure

that the overdrafts are covered within two

business days.

SGD credit facilities should not be extended

to NRFI if there is reason to believe that the

purpose is SGD currency speculation.

The MAS has liberalised cross currency

swaps to facilitate capital market

development in Singapore. There is no

restriction where the need for cross currency

swaps arises from capital market, economic

and financial activities. However, note that

the SGD5m FX swaps restriction still applies.

Restrictions on FX options, asset swaps,

cross-currency swaps and repos have been

lifted. No other restrictions or guidelines will

apply to the use of SGD, other than "those

explicitly stated".

SGD securities – borrowing and lending

activities

Banks may lend any amount of SGD-

denominated securities to NRFI in exchange

for SGD or foreign currency-denominated

collateral.

Equity and bond issuance

SGD-denominated equity or bond issues for

non-residents16 may be arranged as long as

the SGD proceeds raised, if not used in

16 Under MAS757, residents are companies that are 50%-owned by Singapore citizens. Financial institutions in Singapore that are governed by MAS.

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Singapore, are converted into foreign

currency before remittance abroad.

Where the bond issuer is an unrated foreign

entity, banks may place or sell SGD only to

sophisticated investors.

Non-residents may hold any SGD or foreign

currency accounts without authorisation.

Taxation17 Singapore maintains one of the most open

economies in the world. Foreign investment has

been instrumental in transforming Singapore from

a port city into a modern and competitive hub for

business. The government maintains several

incentive programs designed to stimulate

investment. For example, a number of

government agencies offer capital and tax

incentives to specific industries. There are also

incentives for firms producing goods specifically

for export. Singapore is involved in several free

trade agreements, most notably with Australia and

the United States.

All companies must be listed with the

Registry of Companies and Businesses.

Non-residents may purchase property in

Singapore, although investments into private

housing properties such as HDB-owned flats

and executive housing and landed properties

require approval from Housing Development

Board.

There are currently no anti-trust laws in

Singapore.

Firms may establish a branch in Singapore,

however most prefer to set up a local

subsidiary for tax reasons.


The base corporate tax rate was cut to 18%

from 20%, effective for YA2008.

Derivative interest payments by non-banks to

offshore parties are subject to a 15%

withholding tax.


Date Event

2008 1 Jan New Year’s Day 7-8 Feb Chinese New Year 21 Mar Good Friday 1 May Labour Day 19 May Vesak Day 9 Aug National Day 1 Oct Hari Raya Pussa 28 Oct Deepavali 8 Dec Hari Raya Haji 25 Dec Christmas

Source: Ministry of Manpower , Singapore

Information sources

Monetary Authority of Singapore www.mas.gov.sg Ministry of Trade and Industry www.mti.gov.sg Ministry of Finance app.mof.gov.sg

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HSBC is active in South Korean markets from

trading floors in Seoul, Hong Kong, New York

and London offering the following suite of

products:

Spot FX18

Non-deliverable forwards out to 10 years19

Non-deliverable FX options out to 5 years

and further on a case by case basis

Non-deliverable cross currency swaps to 10

years

Onshore cross-currency and interest rate

swaps to 10 years

Korean won and hard currency bonds,

onshore fixed income and money market

products

HSBC is also active in the South Korean

fixed income market, which is the second

largest in Asia after Japan.

18 Onshore only; offshore counterparties must have underlying investment

19 Can not trade with onshore counterparties, including offshore subsidiaries

Spot

The KRW is fully convertible however, is only

tradable on a non-deliverable basis in the offshore

market.

Forwards/FX swaps

Offshore, the won is actively traded in the form of

dollar settled non-deliverable forwards. The

offshore won market is liquid with an estimated

daily volume of approximately USD1.5bn. The

best liquidity is found in tenors of 12 months or

less. Onshore, there is an active conventional

forward market.

Options

Currency options are available both onshore and

offshore, though on a non-deliverable basis in the

offshore market. Tenors extend out to 5 years,

with longer tenors available on a case by case

basis.





South Korean won (KRW)

The Bank of Korea (BOK), overseas a floating exchange rate

regime and will intervene to smooth excess volatility

The KRW is fully convertible but only tradable on a non-

deliverable basis in the offshore market

The offshore NDF market is generally liquid with an estimated

daily turnover of USD1.5bn

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Onshore average daily volume USD9bn Onshore spot transaction USD5m Onshore bid/ask spread 20 pips (0.20KRW) Onshore forward transaction USD50m Onshore forward spread 1M 20 pips (0.20 KRW) Offshore average daily volume USD1.5bn NDF transaction USD5m NDF spreads 3M 50 pips (0.50 KRW) Implied option volatility spread 0.2 vol for all dates


FX framework Foreign exchange policy is principally determined

by the Ministry of Finance and Economy

(MOFE), while the central bank, the Bank of

Korea (BOK), oversees exchange movements

according to this policy. According to the Bank of

Korea Act, maintaining price stability is the

primary objective of BOK monetary policy. The

seven member Monetary Policy Committee within

the BOK, develops and implements monetary

policy. The won is a floating currency, although

the BOK will intervene to smooth excess

volatility.

Since the Asian currency crisis in the late 1990s,

South Korea has been liberalising foreign

exchange regulations, although many rules remain

in effect. The government of Korea intends to

develop the country into a regional hub for

business by 2011 and in doing so intends to fully

liberalise foreign exchange over time.

Along with the liberalisation of foreign currency

transactions, South Korea has been moving

towards a more open position on foreign direct

investment. The government now offers several

incentives to companies working in the

technology sector or located in a free-trade zone.

The primary legislation governing foreign

exchange transactions is the Foreign

Exchange Transaction Act (FETA).

The primary legislation governing foreign

investment is the Foreign Investment

Promotion Act (FIPA).

South Korea has signed a free trade

agreement with Chile and is considering

agreements with Japan and the United States.

Non-residents may purchase property.


The KRW is a non-deliverable, floating

exchange rate.

Fixing mechanism

The FX market is open from 9 am to 3pm

Seoul time, and does not close for lunch.

The KRW fix is published 9am Seoul time

one business day prior to settlement. It is

calculated using a weighted average of the

onshore spot market over the course of the

day prior to the fix (known as the market

average rate - or MAR). E.g. Value 28 April

will fix 26 April.

To trade off of the fix rate for particular day,

the order must be passed before the onshore

market opens on the MAR date.

Korean Option expires at 2.30 HK time.

The fixing rate is published on Reuters page

‘KFTC18.’




Source: HSBC Notes: Times based on Seoul local time = GMT +9 hours

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Background

1965-1980: KRW/USD determined by a

floating exchange rate mechanism.

1980-1989: KRW/USD exchange rate fixed

by the authorities.

1990-1997: FX rates calculated as a trade-

weighted, multi-currency basket.

Since 1997, a floating exchange rate system

has been operating, with intervention limited

to smoothing market volatility.

There have been three main phases of FX

liberalisation: the first phase started in April

1999; the second in January 2001; and the

third in April 2002.

On April 16 2002, the Korean government

announced its “Plan for the Development of

the Korean Foreign Exchange Market”. As a

first step to implement the plan, several

measures were introduced on 1 July 2002.

During the first stage, from 2002 to 2005, the

government greatly eased regulations on FX

transactions for individuals and companies.


Onshore-onshore

FX transactions and capital account

transactions by individuals have been

liberalised. In addition, the remaining

restrictions on FX transactions by

corporations and financial institutions are

being streamlined. Non-banking financial

institutions such as credit unions and post

offices will be allowed to deal in FX by 2009.

Investors have access to the local forward

market and can hedge their investment

exposure through custodian banks after

confirming the “existence” of the investment.

Individuals and corporate residents can hold

unlimited amounts in foreign currency bank

accounts. Korean firms can maintain foreign

currency accounts abroad.

A restriction on FX positions to 50% of

capital for banks will be removed after Basel

II rules take effect.

Offshore-onshore

Non-residents may hold won locally, although

some restrictions may apply.

With relation to capital transactions, domestic

residents can remit up to USD50,000 per year

without filing a report with the BOK except

for overseas direct investments and

investments in real estate.

In the case of current transactions, domestic

residents can remit up to USD50,000 per year

but will be required to verbally tell the BOK.

As of December 2007, foreign investors will

be permitted to buy KRW anytime as credit to

their Korea won securities cash account

without an underlying securities purchase

transaction. As a result, the 'real demand'

principle has been abolished. However, the

resultant funds must still be used for

securities investment or converted and

repatriated.

Purchases of KRW by foreign investors must

be related to securities investment and should

not exceed the value of the securities being

purchased.

KRW may be bought or sold, as long as the

sales are related to securities trades.

Following the change in regulation on

December 2007, foreign investors can now

execute their FX transactions as soon as they

execute their securities sales transactions

without the need to provide this evidence

which they did in the past.

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For investment in securities under the

Regulation on Trading of Securities by

Foreigners – i.e. made by investment ID

cardholders – sale proceeds can be freely

repatriated. Sale proceeds converted into

foreign currency can be remitted overseas or

held in onshore foreign currency accounts.

Onshore-offshore

Foreign-owned companies incorporated in

Korea are required to report to the Ministry of

Commerce, Industry and Energy any foreign

long-term loan agreements concluded with a

foreign parent company or affiliate company.

Residents may hold foreign currency accounts

domestically or abroad.

On 8 November 2007, regulations on

outflows were further eased, including the

removal of a USD3m limit on offshore non-

residential property investment.

Offshore-offshore

The offshore market is limited to NDFs.

Repatriation


or dividends, although reporting requirements

may apply.

External remittances were completely

liberalised with effect from 1 July 2002.


capital, although reporting requirements may

apply.

Remittance of the proceeds of sales of shares

covered by the Foreign Investment Promotion

Law (formerly the Foreign Capital

Inducement Act) must first be approved by a

bank as designated by the MOFE, which may

take one week or longer.

Foreign investors can route their securities-

related FX through any foreign exchange

bank. It is highly recommended that the

custodian bank and the FX bank be the same.

Taxation20 The base corporate tax rate is 15% on taxable

income of KRW100m or less and 27% on

taxable income of more than KRW100m.


Date Event

2008 1 Jan New Year’s Day 19 Feb Lunar New Year 1 Mar Independence Day 1 May Labour Day 24 May Buddha’s Birthday 6 Jun Memorial Day 17 Jul Constitution Day 15 Aug Liberation Day 24–26 Sep Chusok (Harvest Moon Day) 3 Oct National Foundation Day 25 Dec Christmas Day


Information sources

Bank of Korea www.bok.or.kr Ministry of Finance and Economy www.mofe.go.kr Reuters KFTC18 Bloomberg APF1<go>


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Sri Lanka since 1892. We are currently the largest

foreign bank operating in Sri Lanka, offering the

broadest range of banking services. HSBC

provides a wide range of banking services for

both corporate and individual customers in Sri

Lanka. We aim to offer customers access to both

onshore and offshore markets. We are an active

market maker in LKR government and corporate

bonds, spot and forward foreign exchange and

derivatives.

As market leader, we maintain an excellent

relationship with local regulators. Furthermore

our knowledge of the local regulatory

environment and commitment to providing

continuous pricing in difficult market conditions,

extensive global network and client penetration

have created a benchmark for investment houses

in Sri Lanka. We are a dominant provider of FX

products in the local market; this combined with

superior execution has helped HSBC to develop

into one of the leading market makers. This was

highlighted by the CBSL when they released the

figures of an ongoing survey which shows HSBC

contributing over 50% of turnover in all local

market spot and forward deals. HSBC provides a

full range of treasury products which includes:

Spot FX onshore

Forwards out to 2 years

Spot

The average deal size in the spot market is USD

0.5-1m.

Forwards

Technically forward cover up to 2 years is

permitted as per CBSL regulations. However the

interbank market is liquid only up to 6 months.

Options

The FX options market has yet to be developed.

However HSBC will consider all FX options both

onshore and offshore on a case by case basis in

accordance with central bank regulations.





Sri Lankan rupee (LKR)

The Central Bank of Sri Lanka (CBSL) operates a freely floating

exchange rate regime

The LKR is non-deliverable and not fully convertible on the capital

account

The CBSL sets its foreign exchange and monetary policies

through its governing body, the Monetary Board

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Onshore average daily volume USD33m Onshore spot transaction USD0.5-1m Onshore bid/ask spread 10 pips (0.10 LKR) Onshore forward transaction USD9m Onshore forward spread 20 pips (0.20 LKR) Offshore implied option vol spread 3.0 vol for all dates


FX framework The Central Bank of Sri Lanka (CBSL) has a

unique legal structure in which the CBSL is not an

incorporated body. In terms of the Monetary Law

Act, the corporate status is conferred on the

Monetary Board, which is vested with all powers,

functions and duties. As the governing body, the

Monetary Board is responsible for making all

policy decisions related to the management,

operation and administration of the central bank,

including monetary and foreign exchange policy.


CBSL intervenes in the market via direct

sales and purchases, through open-market

operations and at times through moral

suasion.

Background

In November 1977, the LKR was devalued by

85%. Since then, it has depreciated at an

average annual rate of approximately 8% (in

line with the inflation differential) against the

USD and other major trading currencies.

In January 2001, the CBSL ended the

managed-float regime that had been in place

since 1980 by allowing the LKR to float

freely, in an attempt to stabilise interest rates

and protect foreign currency reserves.


All share-related transfers routed through

Share Investment External Rupee Accounts

(SIERA) may be conducted without

Exchange Control approval.

For remittance of dividends, tax clearance

must be obtained, confirming that

withholding tax has been paid.

A special scheme – Rupee Accounts for Non-

Resident Sri Lankan Investments (RANSI) –

exists to enable non-resident Sri Lankans to

remit money for investment in Sri Lanka.

Sri Lankan citizens who have moved

abroad to take up employment, set up a

business or professional organisation, and

continue to live abroad, and Sri Lankan

citizens who have made their permanent

place of abode overseas, are considered

non-residents for Exchange Control

purposes.

Non-resident Sri Lankan citizens are

exempt from such restrictions provided

that they remit their foreign exchange

earnings for investment through RANSI

accounts held at commercial banks

appointed as authorised dealers under the

Exchange Control Act.




Source: HSBC Notes: Times are based on local Sri Lanka time = GMT +5:30

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Income from such investments and interest

income from funds remitted may also be

repatriated without Exchange Control

restrictions.

Any other type of capital transfer requires

exchange control approval.

Regulations

As a signatory of IMF Article 8, Sri Lanka

has relaxed all current account transactions

and removed exchange controls for current

account transactions (trade and service

related). Further, the issuing of a USD500m

sovereign bond in October 2007, opening the

bond market for foreigners and encouraging

local corporates to borrow overseas (revealed

in the 2007’s budget) illustrate the

government’s desire to liberalise the current

account.

Foreign investors and corporations have

access to the spot market.

Export proceeds can be maintained in Export

Foreign Currency (EFC) accounts.

Forwards are allowed for hedging against

stock market-related transactions up to four

days from the date of purchase of shares, for

settlements that must be routed through

SIERAs.

Local subsidiaries are allowed to cover

foreign exchange up to two years forward

(720 days), backed by trade documents at the

point of taking delivery (i.e. import cover).

Investments in the Colombo Stock Exchange

do not require approval provided the

transactions are routed through a SIERA.

Overdraft facilities: local subsidiaries of

foreign corporations are allowed to overdraw

local currency, but not USD, in onshore

operations. Overdraft facilities on SIERA are

prohibited as per current central bank

regulations.

Foreign Currency Banking Unit (FCBU)

accounts are allowed to be overdrawn in USD

but not local currency.

No offshore/NDF market is available.


Date Event

2008 15 Jan Tamil Thai Pongal Day 22 Jan Duruthu Full Moon Poya Day 4 Feb National Day 20 Feb Navam Full Moon Poya Day 6 Mar Mahasivarathri Day 20 Mar Milad Un Nabi (Holy Prophet's B'day) 21 Mar Medin Full Moon Poya Day / Good Friday 11 Apr Additional half day in lieu of day prior to

Sinhala Tamil New Year falling on Saturday 12 Apr Day prior to Sinhala & Tamil New Year 13 Apr Sinhala & Tamil New Year 18 Apr Special Bank Holiday in lieu of Sinhala &

Tamil New Year falling on Sunday 19 Apr Bak Full Moon Poya Day 1 May May Day 19 May Wesak Day 20 May Day following Wesak Day 18 Jun Poson Full Moon Poya Day 17 Jul Esala Full Moon Poya Day 16 Aug Nikini Full Moon Poya Day 14 Sept Binara Full Moon Poya Day 1 Oct Id-Ul-Fitr (Ramazan Festival Day) 14 Oct Vap Full Moon Poya Day 27 Oct Deepavali Festival Day 12 Nov Il Full Moon Poya Day 9 Dec Id-Ul-Alha (Hadji Festival Day) 12 Dec Unduvap Full Moon Poya Day 25 Dec Christmas Day

Source: Sri Lanka Bankers Association, Department of Government Printing

Information sources

The Central Bank of Sri Lanka www.cbsl.gov.lk Ministry of Finance and Planning www.treasury.gov.lk

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In Taiwan, the HSBC Group’s history dates back

to 1885 when The HongKong and Shanghai

Banking Corporation Limited appointed an agent

in Tamsui. Today, HSBC has eight branches

island-wide, offering a comprehensive range of

financial services: personal, commercial,

corporate, trade services, cash management,

treasury and capital markets services, trust

services and custody services. Taiwanese markets

are actively traded from offices in Taipei, Hong

Kong, London and New York, offering the

following suite of products.

Spot FX21

Offshore non-deliverable forwards out to 10

years

FX options out to 5 year and further on a case

by case basis

Cross currency swaps out to 7 years22

Interest rate swaps and local fixed income

21 Offshore HSBC can only sell the currency. Detailed information about the recipient is necessary

22 Offshore swaps are non-deliverable. Fully deliverable swaps are available onshore

Domestic money market products

Spot

The onshore market opens at 9am, closes for

lunch between 12 - 2pm and closes at 4pm.

Forwards/FX swaps

The Taiwan dollar trades in the offshore market as

USD settled non-deliverable forwards. The

offshore NDF market is generally liquid with an

estimated daily turnover of USD1bn. The fixing

rate is the spot rate at 11am local time 2 days prior

to settlement.

Options

Offshore US dollar settled non-deliverable options

(NDOs) are available out to 5 year.





Taiwan dollar (TWD)

The Central Bank of China (CBC) operates a managed floating

currency regime and regularly intervenes to smooth volatility

The TWD is not fully convertible, and any onshore spot

transaction must be declared to the CBC

The offshore NDF market is generally liquid with an estimated

daily turnover of USD1bn

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Onshore average daily volume USD1bn Onshore spot transaction USD10m Onshore bid/ask spread 30 pips (0.030 TWD) Onshore forward transaction USD750m Onshore forward spread 100 pips (0.100TWD) Offshore average daily volume USD1bn NDF transaction USD5-10m NDF spreads 100 pips (0.100 TWD) Implied option volatility spread 0.2 vol for all dates


FX framework The Central Bank of China (CBC) is responsible

for establishing Taiwan’s monetary policy. Even

though the CBC is dependent on the Executive

Yuan, it does maintain independence in setting

monetary policy. At present, the TWD is a

managed floating currency with the CBC

regularly intervening to smooth volatility. Since

the Taiwan dollar is not fully convertible, any

onshore spot transactions must be declared to the

CBC, and in some cases with supporting

documentation. Offshore, the Taiwan dollar trades

on a non-deliverable forward basis.

Taiwan maintains strict controls on the currency,

mainly as a means to deter speculators. The

Taiwanese government is also attempting to

control capital inflows from mainland China and

prevent significant capital flight.

Taiwan maintains numerous restrictions on

foreign investment, although there have been

recent moves towards easing some of these

restrictions. The Statute for Investment by Foreign

Nationals and Overseas Chinese outlines the

industries open to investment and the

requirements for investing. In general, the sectors

that are off limits to foreign investors are those

related to national security, or businesses that may

compromise the well-being of the Taiwanese

people either physically or morally. For all

industries not explicitly off limits, foreigners

receive equal treatment as Taiwanese nationals.

Taiwan does offer some investment incentives,

which are granted under the Statute for Upgrading

Industries. Eligible investors must apply to the

Investment Commission of the Ministry of

Economic Activities if they wish to enroll in any

of the incentive programs. Foreign entities may

acquire 100% of a local enterprise.


The TWD is classified as a floating currency

regime, but with significant intervention to

limit volatility.

Fixing mechanism

The TWD fix is a snapshot of the onshore

market price at 11am two business days prior

to value date. E.g. Value 28 April Fix 26

April.

Taipei cuts expires 11am HK time.

Background

Before 1978, the TWD was pegged to the

USD.

From 1978 to 1989, a managed floating rate

regime with fluctuation limits was in place.

From 1989, the CBC abolished the mid-rate

system and planned liberalisation.




Source: HSBC Notes: Times based on Taipei local time = GMT +8 hours

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QFII requirements were abolished in October

2003.


The CBC promotes market a driven exchange

rate.

However, it does intervene sometimes to curb

excessive speculation by buying or selling

USD through major local banks and brokers.

It also carries out open market operations

using treasury bills and negotiable certificate

of deposits (NCDs).

Repatriation & other regulations The Executive Yuan recently eased restrictions on

remitting and repatriating capital, but most

currency controls remain in effect.

The qualified foreign institutional investor (QFII)

rules were abolished in October 2003. Instead

foreign investors are now classified as ‘foreign

institutional investors’ (FINIs) and ‘foreign

individual investors’ (FIDIs). Both are required to

register with the Taiwan Stock Exchange (TSE).

Furthermore, in term of quotas, FINIs have

unlimited investment quotas, while FIDIs are

restricted to a maximum USD5m quota.

FX swaps (even amounts) do not require

documentation or CBC approval. Spot deals

above TWD500,000 plus all forwards and swaps

require the completion of an original “Declaration

Statement of Foreign Exchange Receipts and

Disbursements or Transactions” form bearing the

company seal. Banks are required to confirm that

the required supporting documents comply with

the Declaration Statement for amounts greater

than TWD1m.

Regulations

Onshore-onshore

There are no limits on the currency’s trading

range, but there are limits in convertibility on

the capital account.

Only foreign institutional investors (FINIs),

foreign individual investors (FIDI) and local

registered entities (with support documents)

can deal spot onshore.

Residents have access to the local forward

market.

Access to foreign exchange is divided into

three categories:

import and export

cost of trade-related services

investments, capital repatriation, and

dividends

Currency options are available.

The TWD is a regulated market with

documentary proof required for FX

transactions onshore where the amount is

equal to or greater than USD1m. For

FINI/FIDI, all transactions will be

documented regardless of FX amount.

Offshore-onshore

Only onshore entities have access to onshore

markets.

Onshore-offshore

Foreign-owned companies must apply to the

Foreign Exchange Department of the CBC

and the Investment Commission at the

Ministry of Economic Affairs simultaneously,

in order to secure approval for borrowing

from abroad.

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Repatriation

Interest & principal

There are no restrictions on remittance of

interest and principal if the original loan has

been approved.

Dividends & profits

For investments conducted pursuant to the

Statute for Investment by Foreign Nationals

(SIFN), 100% of dividends and net profits

may be remitted without restriction.

Capital

With proper supporting documents,

investment income, including capital gains

and interest/dividend income can be

repatriated after the appointment and

subsequent concurrence of a tax guarantor.

For FINI/FIDI

For outward remittance, in Taiwan not all

cash balances can be repatriated automatically.

Currently FINIs/FIDIs are allowed to

repatriate their 'principal' amount freely

('principal' amount is the difference between

the total accumulated inward remittance and

outward remittance).

However if the balance consists of 'earnings'

(investment income, including capital gains,

dividend income, interest and other income),

it can only be effected after a tax guarantor in

Taiwan has been appointed by the FINI/FIDI

and the repatriation amount has been

approved by the tax guarantor/agent.

Offshore-offshore

The offshore market is limited to NDFs.

Taxation23 The corporate tax rate is based on the amount

of taxable income. The highest bracket is 25%

on taxable income over TWD100,000.

Capital gains from trading securities issued by

Taiwan entities is income tax free but subject

to a transaction tax.

There is only taxation at the national level,

with no municipal taxes.

For FINI/FIDI securities investment,

withholding tax on cash dividends, interest and

other income is deducted at source, at a

standard rate of 20%. Under certain tax treaties

the withholding tax will be reduced. While

capital gains from trading securities issued by

Taiwan entities are income tax fee even for

foreign investors, for FINIs with fixed business

places in Taiwan, their capital gains are subject

to an Alternative Minimum Tax. If there is

gain on an FX forward rollover, it is subject to

a 20% withholding tax.


Date Event

2008 1 Jan New Year’s day 6-11 Feb Chinese New Year 28 Feb Peace Memorial Day 4 Apr Ching Ming Festival 1 May Labour Day 10 Oct National Day


Information sources

Central Bank of China www.cbc.gov.tw Bureau of Foreign Trade www.trade.gov.tw MOEA Investment Commission www.moeaic.gov.tw Ministry of Finance www.mof.gov.tw Financial Supervisory Commission www.sfcey.gov.tw Reuters TAIFX1 Bloomberg APF1<go>


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HSBC opened the first commercial bank in

Thailand in 1888. It was also the first to issue

Thailand’s first currency notes, guarantee the first

Thai government bond issue and underwrite the

first offshore loan syndication to begin

construction of Thailand’s railway system. Today,

HSBC is active in Thai markets from Bangkok,

New York, London and Hong Kong, offering the

following suite of products:

Spot FX

Forwards out to 10 years24




Interest rate swaps and a full line of domestic

fixed income and money market products

24 Non-residents without underlying may only borrow or lend THB50m from/to domestic financial institutions and may only access the local forward market with underlying trade/investment business.

Spot

The FX market is the most basic and highly

competitive market in Thailand with full

participation by all onshore banks and at times

offshore banks as well. Daily turnover is currently

USD200-300m with BoT playing an important

role in influencing the size and liquidity of this

market through onshore-offshore dealing

regulations.

Forwards/FX swaps

There is good liquidity in the FX forward market

out to 12 months, with the best liquidity in tenors

up to 3 months. There is an estimated daily

turnover in the forward market of USD200-400m.

Since there is no effective inter-bank cash market

in Thailand, the foreign exchange forward market

is widely used in determining baht interest rate

benchmarks among banks.

Options

Currency options are available out to 5 years with

most liquidity during Asian trading.

Thai baht (THB)

The Bank of Thailand (BoT) operates a managed floating currency

regime and intervenes in the market to offset excessive strength

or weakness in the baht

The THB is deliverable and largely convertible, though with an

unremunerated reserve requirement imposed on certain capital

flows

Monitoring the frequent regulatory tweaks is required for market

participants to maintain operational efficiency

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Cross-currency and interest rate swaps are

available both onshore and offshore out to 10

years although the onshore market is more liquid.



Onshore average daily volume USD 450m Onshore spot transaction USD 3m Onshore bid/ask spread 2 pips (0.02 THB) Onshore forward transaction USD20m Onshore forward spread 1M 0.5 pip (0.005 THB)

12M 2.5 pips (0.025 THB) Offshore average daily volume USD60m Offshore bid/ask spread 10 pips (0.01 THB) Onshore implied option vol spread 0.3 vol out to 2 year Offshore implied option volatility spread 1.0 vol out to 5 year


FX framework The Thai Baht is a managed floating currency

within the remit of the Bank of Thailand (BoT),

the kingdom’s central bank. The BoT is also

responsible for establishing and implementing

monetary policy. Although it does not set a

specific exchange rate target, it does intervene in

the market to offset excessive strength or

weakness in the baht. The baht is fully convertible

and has a relatively liquid spot market. Foreign

exchange transactions for onshore corporations

must have legitimate underlying business with

documentary evidence (e.g., invoice or loan

agreement).

The Ministry of Finance has entrusted the BoT

with the responsibility of administering foreign

exchange regulations.

The Thai government has long maintained an

open and friendly environment for foreign

investment. All inward foreign investments must

be approved by the Board of Investment, which

falls under the Ministry of Industry. There are

restrictions on foreigners investing in certain

industries that are considered vital to security or

Thai culture. Numerous incentives exist to attract

investors. Most incentives are related to specific

regions, industries or both.


The THB, as the lawful currency of the

Kingdom of Thailand, is under a managed

floating regime. The BoT closely monitors

and intervenes, as appropriate, through both

spot and forward transactions in both onshore

and offshore markets.

Background

1945-1978: Fixed parity system to the USD.

1978-1984: Trade-weighted basket before

fixing to USD parity in 1981.

1985-1997: THB closely managed against a

basket of currencies with the USD making up

an estimated 80%.

15 May 1997 – 30 Jan 1998: Non-residents

were not allowed to deal THB spot with on-

shore banks, resulting in a Two-Tier FX rate

system.




Source: HSBC Notes: Times are based on Bangkok local time = GMT +7 hours

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30 January 1998: Two-Tier system

disbanded.


Projection hedging is generally not allowed

onshore, except with BoT approval which is

only granted on rare occasions.

All non-cash FX transactions must be

conducted through authorised banks.

Non-residents may hold baht accounts

onshore. Restrictions apply to funds that did

not originate offshore.

Hedging by offshore non-residents with

onshore institutions must comply with BOT

guidelines, some of which may require direct

BOT approval.

Transactions with non-residents – Buying THB

and selling applicable foreign currencies (FCY)

For transactions value today and value

tomorrow, only FX transactions with

underlying securities are allowed and prior

BOT approval must be obtained.

Any non-residents who wish to buy THB and

sell foreign currency for value spot, BoT

approval is not required.

For FX forward transactions, there is no

restriction on non-residents selling FCY

forward with a tenor exceeding six months.

Transactions with a tenor less than six

months, without an underlying trade or

investments, will be subject to the limitation

of THB50m (for any THB borrowing

transaction by on-shore banks from non-

residents).

Transactions with non-residents – Selling THB

and buying FCY

Non-residents are allowed to sell THB,

derived from securities transactions, held in

non-resident THB accounts with spot value or

less than spot value without any restriction,

provided that the transaction is conducted on

the securities settlement date. However,

transactions conducted on any date other than

the securities settlement date must be

conducted on a spot basis.

Non-resident clients may enter into forward

transactions to buy FCY with on-shore banks,

but the amount of such forward transactions

shall not exceed the value of the underlying

trade or investment in Thailand. Such a

forward transaction is required to be regularly

marked to market, and if the value of the

underlying trade or investment falls below the

value of the forward, the position must be

adjusted accordingly.

The Unremunerated Reserve Requirement (URR) scheme

On 18 Dec 2006, the BoT, with the intention

to curb speculative buying of THB, issued a

notification to impose a 30% unremunerated

reserve requirement on non-resident entities

selling foreign currency for THB.

The reserve is kept with BoT and will be fully

returned upon request, provided that there is

proof those THB (70%) has been maintained in

Thailand for at least 1 year, or else only two-

thirds of such reserve (20%) will be paid back.

There are several kinds of transaction

which are exempted from this directive,

notably investment in the local stock

market and payment for goods and

services to Thai residents.

To allow non-residents who do not have

trade/investment underlying to cover small

THB exposure, onshore banks are permitted

to buy foreign currency and sell THB value

spot for an amount not exceeding USD20,000

or equivalent.

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Repatriation

Repatriation of capital, repayment of loans and

interest, inward/outward remittance of funds for

equity investment are permitted subject to the

presentation of relevant supporting documents.

Borrowing

Non-residents, without underlying, may borrow

up to THB50m from on-shore banks through

FX swaps without an underlying transaction.

Any transaction that results in a non-resident

borrowing more than THB50m requires proof

of underlying trade and investment activities in

Thailand. Overdraws that can not be covered

elsewhere will have to deal value same day

with BOT at a penalty FX rate.

On-shore banks are restricted from borrowing

THB from non-residents without an

underlying transaction, to an aggregate

amount of no more than THB50m per

individual non-resident (from the BoT’s

perspective, all branches of the same legal

entity are considered as one individual entity).

Exception to this directive are transactions

with a tenor greater than 6 months.

From October 2003, consolidated non-

resident account credit balances must not

exceed THB300m.

Transactions classified as non-resident

lending THB to onshore banks include:

direct lending

short-term THB instruments sold to non-

residents

non-residents selling USD to residents or

buying THB forward from residents

non-residents lending THB through the swap

market

derivatives transactions that result in non-

residents lending THB

non-residents buying USD/THB at less than

the spot’s value date

Any transaction (resulting in a non-resident

lending THB to on-shore banks) with a tenor of

longer than six months will not be counted as

part of the aforementioned THB50m limitation.

Accounts

Non-resident THB accounts

For the ease of supervision, the BoT has

instructed onshore banks to set up different

special non-resident accounts, namely:

Non-Resident Bank Account (NRBA) – for

general purpose transactions in accordance

with exchange control regulations.

Special NRBA for Securities (SNS) – for

investment in equity and future contracts

Special NRBA for Debt Securities and

Unit Trusts (SND)

Special NRBA for international trade and

services payment (SNT)

Interest is prohibited from being paid to non-

resident THB current and THB savings

accounts, except for THB fixed deposits with

an original tenor of at least 6 months.

Each individual non-resident may have a

credit balance maintained in its non-resident

THB account up to the maximum of

THB300m in total across all accounts under

its name. (For the purpose of this regulation,

unlike the interpretation of other BoT

regulations, each branch of the same legal

entity, or related parties, is considered as an

individual non-resident). Prior BoT approval

is required for amounts in excess of

THB300m. In this regard, on-shore banks are

also required to report the outstanding balance

of non-resident THB accounts maintained

with them to the BoT.

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Resident FCY deposit account

A resident corporation may place unlimited

funds in an onshore foreign currency deposit

account if the funds are sourced from

offshore, and a maximum of USD50m if it the

funds are sourced locally, according to its

total obligations or its subsidiary’s

obligations. The interest received from such

deposit is also subject to a 1% withholding

tax as is the case of a local currency deposit.

In the case where future FCY obligations can

not be demonstrated, a resident corporate is

still allowed to place FCY in a special

separate deposit account if the funds have

originated from abroad, or USD0.3m if the

funds have been obtained locally.

Taxation25 The base tax rate is 30%. There is also an

additional dividend tax, making the effective

tax rate 33.5%.

15% withholding tax is payable on interest

payments to offshore lenders.

Capital gains are treated as ordinary income

for corporations.

Companies establishing a Regional Operating

Headquarters (ROH) are qualified to receive

tax breaks.

Publicly traded companies listed on the Stock

Exchange of Thailand are eligible for a tax

reduction.

Tax incentives are available for investments

in undeveloped areas.



Date Event

2008 1 Jan New Year’s Day 21 Feb Makha Bucha Day 7 Apr Chakri Day 14-15 Apr Songkran Festival 1 May National Labour Day 5 May Coronation Day 19 May Wisakha Bucha Day 1 Jul Mid Year closing day 17 Jul Asarnha Bucha Day 12 Aug H.M the Queen’s Birthday 23 Oct King Chulalongkorn Memorial Day 5 Dec H.M. the King’s Birthday 10 Dec Constitution Day 31 Dec New Year’s Eve

Source: BoT

Information sources

Bank of Thailand www.bot.or.th Ministry of Finance www.mof.go.th Board of Investment www.boi.go.th

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Procedural guideline for authorised banks in undertaking FX transactions according to Thailand measures to prevent THB speculation 1. Non-derivatives transactions

Transactions Underlying No underlying Exception / Condition

1. Lending THB to NR

1.1 Bank lends THB directly X X Except Personal consumption loan for NR having valid work permit longer than one year. The amount must not exceed THB5m. The loan must be fully collateralized Loan to NR residing in neighbour countries, in which BoT approval must be sought on a case by case basis Issuance of credit cards to NR

1.2 Bank provides THB O/D [Lend50] *Also capped by other BoT regulations for the maximum of THB30m per person per bank

1.3 Bank lends through Repurchase Agreement [Repo] or sell and buy back transactions

X X

1.4 Bank buys THB debt instruments issued by NR

X X Except The purchase of THB bond issued by NR who is an international financial institution, foreign government, FI of foreign government, and juristic entity in ASEAN countries as well as Japan, Korea, China, who obtains the approval from MOF to issue such THB bonds

1.5 Bank issues THB Guarantee for NR X X Except Issuance of bid bonds, performance bonds or letter of guarantee for NR who contracts with Thai residents, provided that NR's offshore bank must also provide back-to-back guarantee having conditions according to BoT's requirements Guarantee of THB bonds issued by NR residing in neighbour countries

2. Borrowing THB from NR

2.1 Bank borrows THB - Tenor < 6 months

[U]

[Borrow50]

Except Offshore bank who obtains approval from MOF to issue THB bonds Underlying in this case shall include banks’ lending to residents

- Tenor > 6 months / /

2.2 Bank borrows THB thru Repurchase Agreement [Repo] or sell and buy back transactions

X X

2.3 Bank issues THB Debt Instruments and sell to NR (excluding B/E)

- Tenor < 6 months [Borrow50]


2.4 Bank issues THB B/E [Bill of Exchange] to borrow from NR

X X THB B/E is not allowed regardless of its maturity

3. Buying and Selling FX/THB

3.1 Bank buys FX sells THB for Value spot (T+2) / /

3.2 Bank buys FX sells THB for Value same day/Value tomorrow

@ X

3.3 Bank sells FX buys THB for Value same day/Value tomorrow

[U] [Borrow50]

4. NRBA (including NCD)

@ Outstanding balance at the end of day must

not exceed THB300m

* In case the outstanding THB balance at end of day is in excess of THB300m, BoT's approval can be obtained provided that there is proper underlying investment in Thailand

Note: for any other kinds of transactions, please consult the BoT Anti-THB speculation team at 02 283 5326 7, 02 356 7639 prior to undertaking such transaction. Unofficial English translation. Source: BoT, HSBC

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2. Derivatives transactions

Transactions Underlying No underlying Exception / Condition

1. Derivatives referenced to FX rate and index

1.1 Plain vanilla and structured derivatives according to BoT's Notification dated 6 October 2005

If bank wants to do derivatives transactions outside the scope of the said BoT notification (eg digital option) with NR, prior BoT approval must be sought

(1) Bank's transaction that is equivalent to buying FX in the future, such as buy FX/THB outright forward, sell/buy swap, FX option

Underlying in this case shall include Transactions that bank sells FX outright forward to residents FX option transaction which may result in selling FX to residents in the future

- Tenor < 6 months [U] [Borrow50] Sell/buy swap which is forward start is not allowed


(2) Bank's transaction that is equivalent to selling FX in the future, such as sell FX/THB outright forward, buy/sell swap, FX option

[U] [Lend50] Buy/sell swap which is Forward Start and has proper underlying must seek BoT prior approval. If there is no underlying, the transaction is not allowed

1.2 Structured derivatives beyond the scope of BoT's Notification dated 6 October 2005

@ @

2. Derivatives referenced to Interest Rates and Index

2.1 Plain vanilla and structured derivatives according to BoT's Notification dated 6 October 2005

/ / Conditions: Bank must not receive negative interest Bank must pay to NR in FCY equivalent

2.2 Structured derivatives beyond the scope of BoT's Notification dated 6 October 2005

@ @

3. Debt Instrument Derivatives

(1) Bank buys or sells bond forward with NR X X

(2) Bank buys or sells bond option with NR X X

4. Equity Derivatives according to BoT's Notification

(1) Physical settlement / /

(2) No physical settlement / / Condition: Bank must pay to NR in FCY equivalent

5. Credit Derivatives according to BoT's Notification

(1) Swap transactions, such as credit default swap

/ / Condition: Banks must pay to NR in FCY equivalent

(2) Bank lends to/deposits with NR via note, deposit such as CLN, CLD

X X

(3) Bank borrows/receives deposit from NR via note, deposit (excluding B/E)

- Tenor < 6 months [Borrows50]


6. Derivatives referenced to other kinds of asset and variable

@ @

7. FX/THB Non-Deliverable Forward : NDF

X X Except Rollover or Unwind due to the failure of clients/ counterparty to deliver/settle the full amount of contract

Note: for any other kinds of transactions, please consult the BoT Anti-THB Speculation Team at Tel. 02-283-5326-7, 02-356-7639 prior to undertaking such transaction Unofficial English translation

Source: BoT, HSBC

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Scope

Transaction having THB related with

non-resident counterparty

R

Residents

NR

Non-residents

Underlying

Trade and investment in Thailand done by

NR

/

Permitted without prior BoT approval

required

X

Not permit

@

Require BoT approval

[U]

Allowed but must not exceed underlying

value

[Lend50]

Allowed but outstanding balance [in

aggregation of all kinds of lending

activities] must not exceed THB50m per

group of NRs, inclusive of all banks

[Borrow50]

Allowed but outstanding balance [in

aggregation of all kinds of borrowing

activities] must not exceed THB50m per

group of NRs, inclusive of all banks

Notes and table key

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HSBC opened its first office in Vietnam in 1870

and remained in operation until 1975. HSBC

returned to Ho Chi Minh City (HCMC) in 1992

and subsequently opened a full service branch in

1995. HSBC continues to widen its branch

network, recently opening the second branch in

Hanoi, the capital city, and a representative office

in Can Tho (Mekong Delta) in 2006. HSBC has

also bought a 15% stake of Techcombank, the

fourth largest joint stock bank in Vietnam to

better serve our clients nationwide.

HSBC is currently the largest foreign bank in

Vietnam in terms of total assets, number of staff

and profitability. HSBC received the prestigious

award ‘Best Foreign Bank in Vietnam’ by

FinanceAsia for two consecutive years 2006 and

2007. With its financial strength, the HSBC

Group is bringing unrivalled banking services and

advanced technology to Vietnam.

Spot, forward FX

G3 currency FX options

Cross currency swaps (including VND)

Structured deposits/investments

Non-deliverable forwards on a case by case

basis

Offshore FX options out to 5 years and

further tenors on a case by case basis.

Onshore option enquiries will be considered


All transactions may be done through our branch

in HCMC or Hanoi except for NDFs. Although an

offshore NDF market exists, it is illiquid. NDF

deals can be done only on a case by case basis.

Please contact your HSBC representative for

further information.

Spot

The local spot market has developed considerably

in the past few years. At the moment, five foreign

banks (HSBC, Citibank, ANZ, SCB and

Deutsche), four local state-owned banks (Agri,

ICB, VCB and BIDV), and three local joint stock

banks (Eximbank, Sacombank, Techcombank) are

seen as the major players in the market. The

market’s volume has increased significantly

recently, especially since the end of 2006 when

Vietnam joined the WTO. However, banks’

trading activities are still limited by FX positions

regulated by the central bank. Currently, banks are

Vietnamese dong (VND)

The State Bank of Vietnam (SBV) maintains a system of strict

currency controls and manages the dong tightly with a regime

based on a daily fixing and trading band

Most FX transactions must be conducted onshore

The VND for the past few years has followed a low volatility

implicit 1% annual depreciation policy

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allowed to keep the total VND positions against

other foreign currencies at 30% of their registered

capital.

Forwards/FX swaps/Options

Vietnam does not have a genuine forwards/FX

swap market at this stage. Very few large FX

players are willing to quote two-way swap points

for amounts up to USD5m with maximum tenor

up to 3 months. However, we expect the forward

market to develop as volatility in spot increases.

Options

In 2005, the SBV allowed some local banks to

offer onshore VND currency options on a trial

basis. However, the options markets are also

relatively underdeveloped at this stage. Other

foreign currency options (vanilla and structured)

are only offered by large foreign banks. However,

onshore HSBC will look at enquires on a case by

case basis. HSBC quotes offshore NDF options to

5 years and further on a case by case basis.







Onshore average daily volume USD300m Onshore spot transaction USD1-2m Onshore bid/ask spread 6 pips (6 VND) Onshore forward transaction USD30m Onshore forward spread 10 pips (10 VND) Offshore implied option volatility spread 2.0 vol for all dates



The SBV functions as the central bank,

supervising monetary policy, setting interest

rates and managing the exchange rate. The

SBV still prefers slow adjustments of the

VND to minimise disruption to business.

Circular 01 is the main regulatory

guideline governing foreign exchange

transactions in Vietnam.

In accordance with the Foreign Exchange

Ordinance effective Jun 2006, all current

account transactions may be freely

conducted in line with prevailing

regulations. Resident individuals and

organisations are permitted to invest

offshore.

The SBV announces a daily USD/VND

official exchange rate. This is partly based on

the average rate of interbank transactions the

previous day.

The SBV regulations set a trading band for

USD/VND transactions in the spot market at

+/-0.5% to the official rate. Similar maximum

rates are applicable on forward USD/VND

foreign exchange transactions.

Regulatory ceiling rates apply to USD/VND

transactions.

Background

After the unification of the official and

market exchange rates in March 1989, the

SBV maintained a “managed float” but


12am 2am 4am 6am 8am 10am 12pm 2pm 4pm 6pm 8pm 10pm 12pm


Source: HSBC Notes: Times are based on Hanoi local time = GMT +7 hours

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sharply depreciated the VND in 1991 as a

result of inflationary expectations.

The currency was subject to large, one-off

devaluations annually up to late 1999, when a

“creeping depreciation” policy for foreign

exchange was put in place to coincide with a

narrowing of the trading band over the

official SBV rate.


Foreign investors may remit in foreign

currency and convert into VND for payment

to a local third party at the day's conversion

rate.

Foreign investors are entitled to repatriate

their investment funds and profits when tax

obligations are finalised and supporting

documentation is in place.

Through the Securities Trading Centre,

foreign investors are required to buy VND or

use legitimate VND funds to buy securities.

They are also required to sell VND to

repatriate sale proceeds and income if taxes

have been paid according to the SBV’s

regulations on securities-related transactions.

Investors are subject to the amended tax

regulations issued by the Finance Ministry.

Foreign investors are required to open

securities cash accounts to buy listed

companies’ securities, and capital

contribution and share purchase accounts to

buy non-listed companies’ securities.

All inward and outward securities

transactions by foreign investors must be

conducted via this type of account.

Regulations

Spot

The VND is a restricted, non-deliverable

currency. Only the SBV, state-owned banks,

joint-stock banks, joint-venture banks and

branches of foreign banks may participate

directly in the foreign exchange market.

When foreign currency is purchased against

the VND, supporting documents stating legal

purposes are required.

All payments made in Vietnam must be in

VND except for a limited number of

transactions specified in Circular 01.

The foreign exchange regulations strictly

control the use of foreign currency in normal

cash transactions.

Resident organisations must seek the SBV’s

approval before opening offshore accounts.

However, rules were eased under the Foreign

Exchange Ordinance introduced in June 2006.

For example, domestic investors will be able

to transfer money overseas and the private

sector will be allowed to borrow from aboard.

However, this new ordinance cannot be

applied until further implementation

guidelines are provided.

Foreign-invested enterprises are required to

open a “special use capital account” at a bank.

This account is to be used exclusively for the

receipt of equity contributed by the foreign

party, the receipt of loan proceeds from

offshore creditors, and the receipt of funds

that will be used to repay offshore loans,

repatriate dividends or divestment proceeds.

The SBV removed ceiling deposit rates for

USD deposits of corporate depositors in

March 2007.

From May 2003, resident companies with

vang lai, or overseas income, were no longer

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required to immediately convert a portion of

their foreign currency income into VND.


The forward market is accessible to residents

and non-residents with a genuine need. The

SBV restricts the tenors of forward contracts

between VND and foreign currency to a

minimum of 3 days and a maximum of 365

days. No other forward tenors are allowed.

The tenor of forward and swap transactions

for non VND currencies will be decided by

banks and their customers.

The SBV sets the ceiling rates for USD/VND

foreign exchange forward tenors. The

maximum rate for forwards are set by the

SBV using interest rate differentials based on

the US Fed Funds Rate and the SBV’s Base

Rate. The forward premium is then added to

the USD/VND spot ceiling rate to obtain the

forward ceiling rate. Currently, same-day

transactions are the most popular, but next-

day and two-day spot transactions are also

possible.

Individuals and non-residents are allowed to

transact FX forwards and options.

The SBV introduced overdrafts in 2002. In

2005, it allowed some banks to offer VND

currency options, cross currency swaps,

structured deposits and interest rate options

on a trial basis. The central bank has also

issued regulations allowing certain qualified

banks to deal in interest rate swaps and G3

currency foreign exchange options.

Non-resident offshore companies are allowed

to open foreign currency accounts, but not

VND accounts.

Taxation26 Tax for securities investors

Offshore investors are subject to 0.1% transaction

tax when they sell equities. For fixed income,

offshore investors are subject to 0.1% tax when

they receive bond coupons (0.1% applied for both

coupon and principal) and they are subject to

0.1% transaction tax when they sell bonds.

Other taxes

Interest and fee/expenses payments from residents

to non residents are subject to a 10% withholding

tax.


Date Event

2008 1 Jan New Year’s Day 7-12 Feb Tet (Lunar New Year)* 30 Apr Victory Day 1 May Labour Day 2 Sep National Day

Source: HSBC Information sources

Vietnam Chamber of Commerce www.vcci.com.vn State Bank of Vietnam www.sbv.gov.vn Reuters SBV Fixing VND=SBVN


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Europe, Middle East and Africa

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HSBC offers trade services, treasury services,

global payments and cash management in

Bahrain. The following products are offered by its

regional, London, Hong Kong and New York

trading floors:

Spot FX onshore

Spot FX offshore

FX forwards out to 1 year

Spot

The market for the Bahraini dinar is sufficiently

liquid to meet the demand for commercially

driven transactions, which form the majority of

trades in the currency.

Forwards

Forwards trade out to one year, with longer

maturities available on request.



Onshore average daily volume USD100m Onshore spot transaction USD10m Onshore bid/ask spread 5 pips (0.00005 BHD) Onshore forward spread 6m 50pips (0.00050 BHD) Offshore average daily volume USD200m


FX framework The Central Bank of Bahrain (CBB) is

responsible for maintaining the value of the

Bahraini dinar, and endeavours to ensure

monetary stability.

The dinar has been pegged to the dollar since

1980 at Bahraini dinar 0.37700:USD1. The

BMA buys USD at 0.37500 and sells USD at

0.37700.

There is no clearing on Friday and Saturday.

Repatriation & other regulations The Bahraini dinar is fully convertible, with no

restrictions on foreign exchange.


Date Event

2008 1 Jan New year’s day 9 – 10 Jan Ashura 12 Mar Mawlid Al-Nabi 1 May International Labour Day 1 Oct Eid Al Fitr 10 Dec Eid Al-Adha 16 -17 Dec National Day

Notes: Weekends are Fridays and Saturdays. Source: Reuters

Information sources

Bahrain Monetary Agency www.bma.gov.bh Bahrain Economic Development Board www.bahrainedb.com

Bahraini dinar (BHD)

The Central Bank of Bahrain (CBB) maintains a USD pegged


The BHD is fully convertible and deliverable

The dinar has been pegged to the dollar since 1980

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Source: HSBC Notes: Times are based on Bahrain local time = GMT + 2 hours

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HSBC has no local presence in Croatia but is

active in Croatian markets from London and New

York, offering the following suite of products:

Spot FX

Forwards out to one year

FX options

Spot

The currency is freely convertible, trades mostly

against the Euro and there is good liquidity during

London time.

Forwards

The forward market is fairly liquid but this varies

greatly depending on local market conditions and

spreads tend to be wider than the interest rates

would suggest.

Options

FX options can be quoted out to two years

although trades take place in a sporadic fashion.

The standard transaction size is 10m and both

vanilla and exotic options are offered, with most

options traded against the EUR.


Onshore average daily volume EUR150m Onshore spot transaction EUR 2-3m Onshore bid/ask spread 30-50pips (0.0030-0.0050 HRK) Onshore forward transaction EUR 2-3m Onshore forward spread 3M 400pips (0.0400 HRK)

12M 1000pips (0.1000 HRK) Implied option volatility spread 1M 2.0% vol

Note: Spreads are subject to change with market developments

Source: HSBC

FX framework The CNB is given the responsibility of

maintaining and establishing monetary and

foreign exchange policies, managing foreign

reserves, issuing banknotes and regulating

banks.


There are no restrictions on repatriating

profits.

Local corporates are prevented from trading

offshore.

Taxation Croatia’s corporate tax rate is 20%.

Croatian kuna (HRK)

The Croatian National Bank (CNB) conducts a managed floating


The HRK is fully convertible and deliverable

The HRK has generally traded in narrow band against the Euro

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Date Event

2008 1 Jan New Year’s Day 6 Jan Epiphany 9 Apr Easter Monday 1 May May Day 7 Jun Corpus Christi 22 Jun Anti-Fascism Day 25 Jun Independence Day 5 Aug Thanksgiving 15 Aug Assumption Day 8 Oct Independence Day 1 Nov All Saint’s Day 25 Dec Christmas Day 26 Dec St Stephen’s Day

Source: HSBC

Information sources

Croatian National Bank www.hnb.hr Ministry of Finance www.mfin.hr




Source: HSBC Notes: Croatia local time = GMT + 2 hours; Times are based on Greenwich Mean Time; Times will change according to clock changes in local centres relative to GMT

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From trading floors in New York, London and

Prague, HSBC is an active participant in the

koruna market offering the following suite of

products:

Spot FX


Options out to 2 years

HSBC quotes prices in koruna forwards as far out

as 10 years. HSBC can also offer forward rate

agreements (FRAs) out to 24 months.

Spot

Daily spot turnover is estimated at around

EUR750m, and there is good liquidity during the

day in EUR-CZK. There are a few local major

market makers, and the market is open from

8.30am to 5pm. CZK is mainly traded against

EUR and USD, but there is also flow in a range of

crosses including against GBP, CHF and PLN.

Forwards/FX swaps

Daily forward turnover is estimated at USD1bn,

with the best liquidity in tenors of 2 years or less.

Swap prices may be quoted to 10 years, including

caps, floors and swaptions. The fixing rate is

either the 3 or 6 month Prague Inter-bank Offered

Rate (PRIBOR).

Options

The option market is generally liquid with the best

liquidity in EUR-CZK options of one year or less.

Liquidity in USD-CZK options is lower. Options

expire at 10am NY time. Both vanilla and exotic

options are offered. The standard ticket size is

EUR30m, the maximum tenor offered is 7 years

and average daily turnover is around EUR150m.


Onshore average daily volume EUR750m Onshore spot transaction EUR3-6m Onshore bid/ask spread 2 pips (0.0002 CZK) Onshore forward transaction EUR30m Onshore forward spread 3M 5 pips (0.005)

12M up to 20 pips (0.020) Offshore average daily volume EUR500m Implied option volatility spread 1M 0.35%


FX framework The Czech Republic is widely considered to be

one of the most successful of the Eastern

European transition economies. The shift from a

Czech koruna (CZK)

Ceska Narodni Banka (Czech National Bank or CNB) maintains a

free floating exchange rate regime

The CZK is fully convertible

The Czech Republic became an official member of the European

Union on 1 May 2004. There is currently no official target date set

for entering the single EUR currency

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command to a market economy was expedited by

creating an investment friendly environment.

Ceska Narodni Banka (or Czech National Bank,

CNB) is responsible for maintaining exchange

rate stability and bank supervision. The Ministry

of Finance also has jurisdiction over foreign

exchange policy and financial markets.

The CNB is an independent body whose governor

is appointed by the president for a six year term.

The CNB maintains the right to intervene in the

currency market, which it has done repeatedly in

recent years to stem the appreciation of the

koruna. In the event of a monetary emergency, the

power to implement a rapid response is turned

over to the cabinet, not the CNB. Normally the

koruna is quoted against the Euro, although other

major crosses are not common.

The Czech Republic is very open to foreign

investment and FDI has been steadily growing

since 1989. In a similar manner to other Eastern

European countries, the Czech Republic offers

stable government, low cost of labour, an

educated workforce and duty free access to EU

markets. In addition to their existing advantages,

the Czech government has enacted several pieces

of legislation geared towards enticing foreign

investors. Incentives are offered to firms on a per

case basis; however, firms investing in less

industrial areas are considered more favourably.


The currency is fully convertible and there are

no restrictions on remitting capital abroad,

once all applicable taxes have been paid.

There are no restrictions on firms borrowing

locally or internationally.

Firms are not required to exchange foreign

currency earned on exports.

Taxation27 The base corporate tax rate is 24%. From

2008 onwards there are plans for a reduction

of this to 19%.

There is a 25% withholding tax on royalties,

license fees, business consultancies and a

15% withholding tax on dividends.

There are a number of industry specific tax

incentives, which can be partial or full.


Date Event

2008 1 Jan New Year’s day 24 Mar Easter Monday 1 May Labor day 8 May Liberation day 5 Jul Saints Cyril and Methodius 6 Jul Jan Hus 28 Sep Day of Czech Statehood 28 Oct Independence Day 17 Nov Day of Fight for Freedom 24 Dec Christmas eve 25 Dec Christmas day 26 Dec Christmas holiday


Information sources

Czech National Bank www.cnb.cz Ministry of Finance www.mfcr.cz





Source: HSBC Notes: Times are based on Prague local time = GMT + 2 hours

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HSBC Bank Egypt was established in 1982 as

HongKong Egyptian Bank. The Bank was re-

branded as HSBC Bank Egypt in April 2001. HSBC

Bank Egypt is one of the largest multinational banks

operating in Egypt providing a comprehensive range

of banking and related financial services through a

network of 15 branches. HSBC Bank Egypt offers:

Spot FX

Forwards

Spot

There is a reasonably liquid onshore market,

which can support commercial transactions.

Forwards/ FX swaps

Forwards are liquid up to 1 year and prices are

available up to 2 years.


Onshore average daily volume USD300m Onshore spot transaction USD10m Onshore bid/ask spread 5 pips (0.0005 EGP) Onshore forward transaction USD10m Onshore forward spread 200 - 300 pips (0.02-0.03 EGP)


FX framework In January 2003, the Central Bank of Egypt

(CBE) removed the managed currency pegging

system and replaced it with a managed floating

currency regime. All transactions are referred to

the CBE. There is no clearing on Friday and

Saturday.


The Egyptian pound is fully convertible and

is a deliverable currency

It is permitted to transact EGP with local

banks, provided there is an underlying

commercial transaction.

Offshore banks can place EGP funds in

current accounts with local banks with no

withholding tax, provided that they have sold

foreign currency through that bank.

Offshore banks may only buy / sell their EGP

requirements through their Nostro agents.

Egyptian pound (EGP)

The Central Bank of Egypt (CBE) operates a managed floating

currency regime

Foreign exchange transactions may only be done through

authorised banks and currency dealers

Banks are the only entities allowed to transfer currency out of the

country

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Date Event

2008 10 Jan Eid El Adha 25 Apr Sinai liberation day 27 Apr Sham El Nessam 1 May Labour day 18 Jun Liberation day 22 Jul Revolution day 2 Sep Eid Al-Fitr 24 Oct Special Holiday Declaration 9 - 11 Dec Eid Al-Adha 23 Dec Special holiday declaration 29 Dec Eid Al-Adha

Note: Holidays are dependent on the Muslim Lunar Calendar and may differ one or two days from the date given; Weekends are Fridays and Saturdays Source: HSBC, Bloomberg

Information sources

Ministry of Foreign Trade www.moft.gov.eg Central Bank of Egypt www.cbe.org.eg




Source: HSBC Notes: Times are based on Cairo local time = GMT + 4 hours

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HSBC is active in Hungarian markets from

trading floors in both London and New York,


Spot FX


FX options

Spot

With the capital account becoming fully

convertible in 2001, the market’s liquidity has

improved. Yet liquidity is still moderate with

local banks maintaining a strong market influence.

In addition, the interbank market is almost

entirely quoted versus the EUR with EUR3-5m

the standard size.

Forwards/ FX swaps

Since 2001, the HUF has traded on a deliverable

basis, having previously traded offshore via

NDFs. The forward market is commonly quoted

against both US dollars and euros, with tenor

availability out to five years. Tenors of one year

or less provide the best liquidity. Exchange traded

futures are available in Budapest.

Options

The best liquidity is in options of one year or less,

but options can be traded out to seven years.

HSBC offers both vanilla and exotic options,

mostly against the EUR. The standard ticket size

is around EUR30m and average daily turnover is

estimated at EUR400m.


Onshore average daily volume EUR700m Onshore spot transaction EUR3-5m Onshore bid/ask spread 20 pips (0.20 HUF) Onshore forward transaction EUR20m Onshore forward spread 3M 15pips (0.15 HUF)

12M 50pips (0.50 HUF) Offshore average daily volume EUR700m Implied option volatility spread 1M 0.4%



The HUF is fully convertible, most

commonly trading against the euro but also

against the US dollar.

Hungary has made a very smooth transition

from a centrally planned economy to a market

economy.

Hungarian forint (HUF)

National Bank of Hungary (Magyar Nemzeti Bank, or MNB)

manages a modified freely floating currency

The HUF is fully convertible, most commonly trading against EUR

but also against USD

Hungary joined the European Union in 2004. Its accession into

EMU is yet to be decided

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Monetary policy is established by the

National Bank of Hungary or Magyar

Nemzeti Bank (MNB) and the Ministry of

Finance. Within the MNB, it is the Monetary

Council that is responsible for implementing

policy.

Hungary joined the European Union in 2004.

Its accession into EMU is yet to be decided.


Although the forint is free to float, the MNB

maintains an intervention band of 15% above

or below the parity rate of HUF 281.36:1 EUR.


The MNB and the Ministry of Finance

removed all restrictions on foreign exchange

transactions for both residents and non–

residents in 2001.

There are no restrictions on remitting profits,

capitals or dividends, or on international

borrowing.

Local firms may hold HUF in overseas

accounts and foreign currency in local

accounts.

Taxation28 Hungary is very open to foreign investors.

There are numerous incentives offered by the

Hungarian government to investors including

tax related incentives.


There is no dividend withholding tax.

From 1 September 2006 corporates have been

required to pay a 4% solidarity tax on pre–tax

profit. Private individuals with higher income

have also had to pay a similar solidarity tax

since 1 January 2007.

The corporate minimum tax base is 2% of

annual revenue. This tax base up to HUF5m

is subject to 10% corporate income tax, and

16% above HUF5m.

Between 2006 and 2008 municipal taxes are

100% deductible from corporate income.

Municipal taxes will be abolished in 2008.

Investments of at least HUF3bn in an

underdeveloped region are eligible for an

80% investment tax benefit for 10 years.


Date Event

2008 1 Jan New Year’s Day 15 Mar National Holiday 9 Apr Easter Monday 1 May Labour Day 28 May Whit Monday 20 Aug St Stephen’s Day 23 Oct National Holiday 25 Dec Christmas Day 26 Dec Christmas Holiday

Source: HSBC

Information sources

National Bank of Hungary www.mnb.hu Ministry of Finance www.pm.gov.hu




Source: HSBC Notes: Times are based on Budapest local time = GMT +2 hours

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HSBC is represented in Israel by HSBC Bank plc

and representative offices of HSBC Bank USA

and HSBC Republic Bank. The range of services

includes private banking, corporate and industrial

banking, treasury and foreign exchange, and

investment banking. HSBC is currently the only

foreign bank in Israel who is a member of both

the Tel Aviv Stock Exchange and the Clearing

House. HSBC is active in the shekel market from

floors in Tel Aviv, London and New York


Spot FX

Forwards and cross currency swaps out to 5

years

FX options out to 5 years including both

vanilla and complex products

Spot

The spot market is fairly liquid with spot

transactions around USD50m becoming

increasingly common, though the average size is

nearer USD10m. Spot has a daily turnover

estimated at USD1.3bn.

Forwards/FX swaps

Deliverable forwards are available out to 5 years.

Liquidity is good with an estimated daily volume

of USD1.5bn. In general, a normal forward

transaction is between USD25m and USD50m.

The Israeli swaps market is still small, but

growing. Cross currency swaps are available, but

interest rate swaps are more common.

Options

Options out to five years are available. Liquidity

is good with an estimated daily volume of

USD300m. The average size of a typical

transaction is USD20-50m. HSBC offers both

vanilla and exotic options.


Onshore average daily volume USD1.3bn Onshore spot transaction USD5-10m Onshore bid/ask spread 30-50 pips (0.0030-0.0050 ILS) Onshore forward transaction USD25-50m Onshore forward spread 5-25 pips (0.0005-0.0025 ILS) Offshore average daily volume USD300m Implied option volatility spread 0.25% for all dates Note: Spreads are subject to change with market developments Source: HSBC

FX framework There are currently no exchange controls in

Israel.

The Bank of Israel (BoI) is responsible for

monetary policy and currency management.

Israeli shekel (ILS)

The Bank of Israel (BoI) allows the shekel to freely float with no

discretion for intervention

The ILS is fully convertible

Liquidity decreases on Fridays when banks in Israel close early

for the Sabbath

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In 2005, the BoI ended the use of an exchange

rate band and freely floated the ILS. This shift

in currency regime rescinded the BoI’s

authority to intervene in the market.

Liquidity will decrease on Fridays when

banks in Israel close early for the Sabbath.


Israel is fairly open to investment inflows. In

general, there are no distinctions made

between resident and non-resident investors.

Firms seeking to make capital investments in

industry or tourism in Israel can apply for the

status of ‘Approved Enterprise’, qualifying

the firm for grants and tax exemptions.

Application is made through the Israel

Investment Center (IIC) which is part of

the Ministry of Industry, Trade and

Labor.

Companies must establish a local

subsidiary to receive ‘Approved Status’; a

branch will not qualify.

Israel has free trade area agreements with

several countries, including the US and the

EU.

Public sector contracts may require local

content provision.

There are no restrictions on Israeli citizens

investing abroad.

There are no restrictions on local residents or

firms borrowing internationally.

There are no restrictions on holding foreign

currency in onshore accounts.

There are no restrictions on holding shekels in

offshore accounts.

Taxation29 The basic corporate tax rate is 36%.

The basic corporate tax rate for companies

with ‘Approved Status’ is 10-25%.


Date Event

2008 20 Mar Purim 20 April Passover (begins) 21 – 25 Apr Hol Hamoed Passover 26 Apr Passover (ends) 7 May Memorial Day 8 May Independence Day 9 Jun Shavuot 10 Aug Fast of Tishah-B’Av 30 Sep – 1 Oct Rosh Hashanah 9 Oct Yom Kippur 14 Oct Sukkot

Source: http://www.20xx.co.il Information sources

Bank of Israel www.bankisrael.gov.il Ministry of Finance www.mof.gov.il Ministry of Industry: Trade and Labor www.tamas.gov.il Tel Aviv Stock Exchange www.tase.co.il





Source: HSBC Notes: Times are based on Tel Aviv local time = GMT +3 hours

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HSBC Bank Middle East offers Jordanian clients

a full range of corporate banking, treasury and

personal finance services, including:

Spot FX onshore

Spot FX offshore

FX forwards out to 6 months

Forward trades out to one year are available

upon request

Spot

The Jordanian dinar is fully convertible in the spot

market. Although onshore banks cannot lend JOD

to offshore banks, offshore banks can lend JOD

deposits to onshore banks without paying any

withholding tax. The JOD is relatively illiquid and

all transactions are commercially based.

Forwards

The forward JOD market is very thin and illiquid.

Swaps

Onshore banks can not only trade FX swaps on

both sides within Jordan, but also now with

offshore banks.


Onshore average daily volume USD10m Onshore spot transaction USD1m Onshore bid/ask spread 50 pips (0.0050 JOD) Offshore average daily volume USD20m


FX framework & regulations The Central Bank of Jordan (CBJ) was established

in 1959. It was given the responsibility of

maintaining monetary stability, ensuring the

convertibility of the Jordanian dinar, and

promoting sustained economic growth. The

Jordanian dinar has been pegged to a basket of

currencies since May 1989, although since 1996 it

has been stable at JOD0.7090:USD1. Onshore

banks can sell and buy USD to the CBJ at its

official rates of 0.7080 and 0.7100 (minimum

amount of JOD1m). There is no clearing on

Friday and Saturday.


JOD is a deliverable currency.

Jordanian dinar (JOD)

The Central Bank of Jordan (CBJ) keeps the Jordanian dinar

pegged to a basket of currencies

The JOD is convertible and deliverable

There is no clearing on Friday and Saturday

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Taxation30 All customer deposits with banks entail a 5%

withholding tax.


Date Event

2008 1 Jan New Year’s day 10 Jan Islamic New Year 30 Jan King Abdullah II’s birthday 20 Mar Mawlid al-Nabi 21 Mar Good Friday 23 Mar Easter Monday 1 May Labour day 25 May Independence day 10 Jun Army day 30 Jul Prophet’s Ascension 2 Sep Ramadan begins 2 Oct Eid al-Fitr 14 Nov King Hussein Remembrance Day 9 Dec Eid al-Adha 25 Dec Christmas 29 Dec Islamic New Year

Note: Holidays are dependent on the Muslim Lunar Calendar and may differ one or two days from the date given; Weekends are Fridays and Saturdays. Source: HSBC, http://www.ameinfo.com/jordan_public_holidays/

Information sources

Central Bank of Jordan www.cbj.gov.jo Ministry of Finance www.mof.gov.jo

30 HSBC is not qualified to given tax and legal advice. Specific tax and legal questions should be directed to your appropriate advisor.




Source: HSBC Notes: Times are Jordan local time = GMT + 3 hours;

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HSBC became the first foreign bank to begin

operations in Kuwait following the liberalisation

of the banking sector in 2004. From its base in

Kuwait City, HSBC Bank Middle East offers

Kuwaiti clients a full range of corporate banking

and treasury services:

Spot FX onshore

Spot FX offshore


Spot

The Kuwaiti dinar is fully convertible in the spot

market.

Forwards

The onshore forward market is very thin and

trades out to 6 months. There is a very active

offshore market that trades out to three years.

Longer maturities are available on request.

Options

Trade in KWD options is rare. Options are usually

traded versus the USD, with a standard

transaction size of USD10m and a maximum

tenor of two years.


Onshore average daily volume USD200m Onshore spot transaction USD10m Onshore bid/ask spread 10 pips (0.00010 KWD) Onshore forward transaction 6m USD25m Onshore forward spread 50 pips (0.00050 KWd) Offshore average daily volume USD500m


FX framework The Central Bank of Kuwait (CBK) is responsible

for monetary policy including the management of

the exchange rate. Following its formation in

1969, the CBK set the value of the KWD against a

basket of currencies. At the start of 2003 it

switched to a dollar peg to align Kuwait with the

other Gulf states, in preparation for the planned

introduction of a single currency in 2010. The peg

system was launched at KWD0.29963:USD1 with

a ±3.5% band (0.28914 – 0.31011).

In May 2007, the CBK reverted to a currency

basket regime, which began trading at a rate of

0.28806. The composition of the basket has not

been disclosed but officials have reported that it

reflects both Kuwait’s trade and capital account

flows. CBK typically sets the value USD- KWD

at the start of the day (8am local time) although

there are occasional intra-day adjustments.

There is no clearing on Friday and Saturday.

Kuwaiti dinar (KWD)

The Central Bank of Kuwait (CBK) maintains the Kuwaiti dinar

trading against a basket of currencies

The Kuwaiti dinar is fully convertible in the spot market

There is no clearing on Fridays or Saturdays

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KWD is a deliverable currency

There are no restrictions on foreign exchange

and repatriation.

Onshore banks cannot trade KWD FX swaps

or outright forwards with offshore banks.

Taxation31 No local taxes apply to KWD transactions.

Additional information Holiday Calendar

Date Event

2008 1 Jan New Year’s Day 10 Jan Islamic New Year 25-26 Feb National Day 20 Mar Prophet’s birthday 1-2 Oct Eid al-Fitr 8-9 Dec Eid al-Adha Note: Weekends are Fridays and Saturdays Source: Reuters

Information sources

Central Bank of Kuwait www.cbk.gov.kw Ministry of Finance www.mof.gov.kw





Source: HSBC Notes: Times are based on Kuwait local time = GMT + 3hours

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HSBC Bank Middle East offers Lebanese clients a

full range of corporate banking, treasury and

personal finance services, including the following

FX services:

Spot FX onshore

Deliverable currencies

Spot

The LBP is managed within a band, and is

regulated by the BDL. Offshore banks cannot sell

or buy LBP, unless purchasing T-bills or CDs. At

maturity, these offshore banks will either receive

USD in their accounts, or may reinvest the same

in LBP T-bills or CDs.



Onshore average daily volume USD10m Onshore spot transaction USD0.25m Onshore bid/ask spread 100 pips

Note: Spreads are subject to change with market developments

FX framework The central bank of Lebanon (Banque du

Liban, BDL) was established by the Code of

Money and Credit promulgated on 1 August

1963, by Decree no. 13513. It began

operation effectively on 1 April 1964.

The BDL is vested by law with the exclusive

right to issue the national currency and is

entrusted with the general mission of

safeguarding the national currency in order to

ensure a basis for sustained social and

economic growth.

Currently, the BDL holds an intervention

band; buying dollars at LBP1,501 and selling

dollars at LBP1,514. All commercial

requirements are covered at these levels. The

rate has been stable for the past six years.

The onshore market trades at the upper end of

the intervention band on a regular basis.

There is no clearing on Sunday.

Lebanese pound (LBP)

The central bank of Lebanon (Banque du Liban or BDL) operates

a currency band buying dollars at LBP1,501 and selling dollars at

LBP1,514

The onshore market trades at the upper end of this band on a

regular basis

Offshore banks cannot sell or buy LBP, unless purchasing T-bills

or CDs

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Restrictions are only for institutions.

There are no restrictions for individuals.


Date Event

2008 1 Jan New Year 6 Jan Armenian Christmas Day 10 Jan Hegria New Year (Tentative) 19 Jan Achoura (Tentative) 9 Feb St. Maroun’s Day 20 Mar Prophet’s Birthday (Tentative) 21 Mar Good Friday (Western) 25 Apr Good Friday (Eastern) 1 May Labour Day 15 Aug Assumption of the Virgin Mary 1-2 Oct Id Al Fitr 22 Nov Independence Day 8-9 Dec Id Al-Adha (Tentative) 25 Dec Christmas Day 29 Dec Hegria New Year (Tentative)

Note: * = Holidays are dependent on the Muslim Lunar Calendar and may differ one or two days from the date given; Weekends are only on Sunday Source: Reuters

Information sources

Central Bank of Lebanon www.bdl.gov.lb Ministry of Finance www.finance.gov.lb




Source: HSBC Notes: Times are Beirut local time = GMT + 3 hours

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The Omani FX market is small and liquidity is

limited. HSBC Bank Middle East has been

present in the sultanate for over forty years and

offers Omani clients a full range of corporate

banking, treasury and personal finance services.

Spot FX onshore

Spot FX offshore

FX forwards out to 1 year

Spot

The OMR market is driven by commercial

transactions. Liquidity is limited, but is sufficient

to support commercial activity.

Offshore banks can place OMR funds with

onshore banks. Certificates of deposit are

available for commercial banks only. Treasury

bills are available for commercial banks and local

customers. Government of Oman Development

Bonds can be purchased by overseas investors.

Forwards/FX swaps

There is a reasonably active offshore forward

market with tenors going out to one year for trade

related commercial transactions.

Options

Options are not available.


Onshore average daily volume USD100m Onshore spot transaction USD10m Onshore bid/ask spread 5 pips (0.00005 OMR) Onshore forward transaction USD10m Onshore forward spread 50 pips (0.00050 OMR) Offshore average daily volume USD300m


FX framework The Omani rial is fully convertible and

pegged to the USD.

The OMR has been pegged at

OMR0.3850:USD1 since January 1986.

The central bank buys USD at 0.38400 and

sells USD at 0.38500.

There is no clearing on Friday.


Banks’ FX exposure is restricted to 40% of

their net worth.

The Central Bank of Oman requires forward

FX and swap transactions to have a direct

underlying commercial foundation.

Omani rial (OMR)

The Central Bank of Oman (CBO) pegs the OMR to the USD at

OMR 0.3850:USD1

The OMR is fully convertible

Onshore banks cannot lend OMR offshore

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There is a forward market for local customers

but banks may only quote forward rates for

trade-related transactions.

Banks may not lend OMR overseas or to

offshore institutions.

Taxation32 There is no withholding tax on deposits

placed with Oman.


Date Event

2008 1 Jan New Year’s Day 23 Jul Renaissance Day 1-2 Oct Eid al-Fitr 28-29 Nov National Day 19-20 Dec Eid al-Adha

Note: Weekends are on Fridays only Source: Reuters Information sources

Central Bank of Oman www.cbo.gov.om Ministry of Finance www.finance.gov.om





Source: HSBC Notes: Times are based on Oman local time = GMT + 2 hours

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HSBC is active in the zloty market from trading

floors in Warsaw, London and New York offering

the following products:

Spot FX


FX options out to 3 years

Spot

Liquidity in the spot market is very good with a

normal bid/offer spread of 15 pips (0.0015 PLN).

Forwards/FX swaps

Forwards are traded on both a deliverable and

non-deliverable basis. HSBC will quote forwards

out to 10 years, although the best liquidity is

found in tenors of one-year or shorter.

HSBC trades and offers clients cross-currency

swaps and interest rate swaps out to 10 years.

Plain vanilla fixed rate for floating 3 and 6 months

Warsaw Interbank Offered Rate (WIBOR) are

common. HSBC also offers Forward Rate

Agreements (FRAs) out to two years.

Options

The market for zloty FX options is developing

quickly. Options liquidity continues to increase as

the market develops and more banks provide

continuity of pricing. Options on the zloty are

commonly issued against both the USD and EUR.

All PLN options expire at 11am Warsaw time

(9am GMT). Options are available out to seven

years with an average ticket size of EUR50m, and

both vanilla and exotic options are offered.

Average daily turnover is about EUR400m.


Onshore average daily volume EUR 2bn Onshore spot transaction EUR 1-2m Onshore bid/ask spread 15 pips (0.0015 PLN) Onshore forward transaction EUR 1-2m Onshore forward spread 3M 3 pips (0.0003 PLN)

12M 20 pips (0.0020 PLN) Offshore average daily volume EUR 300m Implied option volatility spread 1M 0.3%


FX framework The Polish zloty has been a freely floating

currency since April 2000 when the

government removed the crawling peg that

had been in place.

The zloty is freely convertible and is reasonably

liquid in the spot market: it is commonly

quoted against both the EUR and the USD.

Polish zloty (PLN)

The National Bank of Poland (NBP) oversees a freely floating

currency

The PLN is freely convertible

Poland joined the European Union in 2004 and plans on joining

the Eurozone between 2010-12

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Poland joined the European Union in 2004

and plans on joining the Eurozone between

2010-12.

The NBP determines monetary and foreign

exchange policy. In 2002, the Polish

government passed a new FX law that brings

Polish regulations into compliance with the

standards of the European Union. The same

law also removes all restrictions on capital

flows between Poland and European Union

member states.

The Ministry of Finance is responsible for

monitoring the foreign exchange activities of

companies and individuals. The central bank

issues a daily closing rate for the zloty, which

is used for accounting purposes.

In order to attract international capital, Poland

offers several investment incentives and

generally endeavours to create an investment-

friendly environment.

Foreign investors are subject to a few small

restrictions, but for the most part,

international investors enjoy the same

treatment as local investors.

The Freedom of the Economic Activity of

July 2004 is a specific piece of legislation that

governs the conduct of economic activity in

the territory of Poland.


Repatriation of capital is unrestricted, but

must be reported.

A general license from the Ministry of

Finance is required to remit profits.

Borrowing from outside the EU requires a

permit from the NBP; however, there are

several exemptions.

There are no restrictions on the repayment of

loans issued abroad.

Taxation33 Foreign investors from the EU and EFTA

(European Free Trade Association) may carry

on their activities on the same terms as Polish

entrepreneurs.

Poland has double-tax treaties (on dividends,

royalties and interest) with over 75 countries,

including the United States.

The current base corporate tax rate is 19%.

There are no municipal income taxes.

Most capital gains are treated as income.

Non-resident foreigners require the consent of

the Ministry of Internal Affairs to purchase

real estate (with several exceptions).





Source: HSBC Notes: Times are based on Warsaw local time = GMT +2 hours

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Date Event

2008 1 Jan New Year’s Day 8-9 Apr Easter Sunday and Easter Monday 1 May Labour Day 3 May Constitution Day 7 Jun Corpus Christi Day 15 Aug Assumption Day 1 Nov All Saint’s Day 11 Nov Independence Day 25 Dec Christmas Day 26 Dec Boxing Day

Source: HSBC, Bloomberg Information sources

National Bank of Poland www.nbp.pl Ministry of Finance www.mofnet.gov.pl

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The most rapid economic growth trajectory in the

Gulf and a growing ambition to act as a regional

financial hub have begun to change Qatar’s once

quiet FX market. Although forward markets are

thin, transaction volumes are rising.

HSBC Middle East’s long-standing presence in

Doha allows it to offer Qatari clients a full range

of corporate banking, treasury and personal

finance services, including:

Spot FX onshore

Spot FX offshore


Spot

The Qatari riyal is fully convertible. Market

transactions are commercially driven and, while

the QAR market is generally illiquid, it can handle

the volume of commercial transactions.

Forwards

The onshore forward and deposit market is very

thin and quotes out to 6 months. The offshore

forward market trades out to 36 months. Longer

maturities are available on request.

Options

Trades in the options market are very rare, with a

standard ticket size of USD10m and a maximum

tenor of one year.


Onshore average daily volume USD200m Onshore spot transaction USD20m Onshore bid/ask spread 10 pips (0.0010 QAR) Onshore forward transaction USD25m Onshore forward spread 50 pips (0.0050 QAR) Offshore average daily volume USD400m


FX framework The Qatar Central Bank (QCB) introduced the

Qatari Riyal in 1973 and has pegged it against

the dollar since 1980 at QAR 3.6400:USD1.

The QCB buys USD at 3.6385 and sells at

3.6415.

There is no clearing on Fridays and

Saturdays.


The Qatari riyal is fully convertible and is

deliverable.

Qatari riyal (QAR)

The Qatar Central Bank (QCB) maintains a peg against the USD

The QAR is fully convertible

The QAR market is generally illiquid, but can handle the volume of

commercial transactions

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No controls are enforced on currency

exchange or repatriation although the market

is closely monitored by the central bank.

Taxation34 No local taxes are applied to FX transactions.


Date Event

2008 1 Jan New Year’s Day 1-2 Oct Eid al-Fitr 8-9 Dec Eid al-Adha 18 Dec National Day

Note: Holidays are dependent on the Muslim Lunar Calendar and may differ one or two days from the date given. Weekends are on Fridays and Saturdays Source: Reuters

Information sources

Central Bank of Qatar www.qcb.gov.qa State Planning Council www.planning.gov.qa

34 HSBC is not qualified to givn tax and legal advice. Specific tax and legal questions should be directed to your appropriate advisor.




Source: HSBC Notes: Times are based on Qatar local time = GMT + 3 hours

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The HSBC Group operates in Russia through its

100% owned subsidiary HSBC Bank (RR) and

offers a full range of products for corporate

clients. HSBC employs an integrated trading

model for FX and fixed income products between

Moscow and London that allows the bank to

match both local and international flows in the

rouble in the most effective way - taking into

account the limited access of international banks

to the local market as well as legal limitations for

Russian banks to operate off-shore. HSBC Bank

(RR) is firmly established as one of the main

providers of FX products (spot and forwards) to

both local corporates and multinationals. It also

has memberships on both MICEX (Moscow

Interbank Currency Exchange) and RTS (Russia

Trading System), which are the two major

exchanges capturing most of trading in local

bonds and equities. HSBC in Russia offers:

Spot FX



Structured forwards

RUB loans (fixed and floating rate) and

deposits

A range of basic interest rate and FX

derivatives (IRS, CCS and FX options)

Meanwhile, HSBC in London offers deliverable

and non-deliverable FX products including cross

currency swaps as well as money market products

like RUB loans and deposits.

Spot

The domestic RUB FX market mainly trades spot,

short-term FX swaps and FX forwards.

Historically, spot has traded in 2 varieties – value

today and value tomorrow settlement;

conventional spot (T+2) is normally quoted upon

request. Most of the volume (around 90%) is done

over-the-counter (OTC), however there are

regular trading sessions at MICEX (Moscow

Interbank Currency Exchange).

Forwards/FX swaps

Prior to the 1998 Russian financial crisis, forward

markets were developing onshore. However, many

Russian banks suffered losses due to the devaluation

of the rouble and, subsequently, Russian courts ruled

Russian rouble (RUB)

The Central Bank of the Russian Federation (CBR) operates a

managed float currency exchange regime with the RUB informally

pegged to a EUR-USD basket

The RUB became fully convertible in 2006

Periodically, the CBR will intervene to make sure RUB stays

within a certain band against the basket, and from time to time will

also change the level of RUB against the basket

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that forward contracts were not legally enforceable.

The forward market has since moved offshore where

dollar-settled non-deliverable forwards were the

primary means by which the rouble was traded until

mid-2006, when the abolition of certain capital

controls made the rouble fully convertible. In recent

years the onshore FX forward market has gained

liquidity however, the tenor of local forwards and

swaps is still relatively short. Rouble futures are

traded on the Chicago Mercantile Exchange (CME),

Moscow Inter-bank Currency Exchange (MICEX)

and RTS FORTS.

Options

The RUB has been convertible since 2006 but

most transactions in the options market still take

place on a non-deliverable basis due to the lack of

liquidity of the RUB money market. The standard

ticket size is USD30m and the average daily

turnover is USD300m. Options are offered out to

five years and both vanilla and exotic options are

available. Due to recent changes in the Russian

legal framework which have made derivatives

fully enforceable, activity is likely to increase and

spread further to Russian banks and corporates.



Onshore average daily volume USD30bn Onshore spot transaction USD50m Onshore bid/ask spread 50-100 pips (0.005–0.010 RUB) Onshore forward transaction USD10m Onshore forward spread 100-200 pips (0.010–0.020 RUB) NDF transaction USD10-100m NDF spreads 1M 100-200 pips (0.0100-0.0200 RUB)

12M 200-300 pips (0.0200-0.0300 RUB) Implied option volatility spread 0.4% for all dates


FX framework The central bank of the Russian Federation (CBR)

is responsible for carrying out monetary policy as

well as regulating banks. The Federal Service for

Financial Markets and the Ministry of Finance

regulate the non-banking sector of capital

markets. The rouble officially exists under a

managed float currency exchange regime, being

informally pegged to a EUR-USD basket.

Periodically, the CBR intervenes by changing the

rouble price of the basket in line with its counter-

inflationary policy.

Russia substantially liberalised its currency

regime in August 2004 when current account

restrictions that had been introduced in the

aftermath of the 1998 financial crisis were

removed. At the same time, Russia introduced

new restrictions on capital account transactions.

These restrictions were removed on 1 July 2006,

so that now capital account transactions can be

carried out without restrictions, making the rouble

a convertible and internationally accepted

currency, and adherence to the general

deregulation course which underlines Russia’s

strong intention to move to establishing a

completely open economy.

The CBR actively participates in the market,

managing the RUB FX rate according to the

guidelines in the Main Directions of Monetary

Policy which are set on an annual basis.

Typically, the CBR buys the excessive USD

liquidity coming to the country from natural

resources exports. However, it readily intervenes

in the market in cases of sharp RUB fluctuations




Source: HSBC Notes: Times are based on Moscow local time = GMT +3 hours

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on the other side as well. At present, the CBR FX

bid/ask spread is about 1%.

The CBR uses a simplified EUR-USD currency

basket (currently EUR45/USD55) as the RUB

performance benchmark in its day-to-day activity.

Its exchange rate targets for nominal and real

effective rates, however, are set against the

‘broad’ trade balance-based currency basket.

There exist explicit and implicit restrictions for

foreign investors interested in entering

strategically important sectors. The Russian

government has been working to reform

regulation to make them more transparent, with a

draft law already having been submitted to the

State Duma.


There are no restrictions on RUB

convertibility for both residents and non-

residents.

Local corporates can only conduct FX

transactions with authorised local Russian

banks (such as HSBC Bank (RR), Russia).

There are no restrictions on foreign currency

purchases/sales by resident corporates.

The so-called point of ‘currency control’ is

now moved from FX to payments between

residents and non-residents where residents

need to justify the purpose of a transaction by

providing supporting documentation to one of

the local banks which would act as a

“currency controls agent”.

Taxation35 Tax rates in Russia are relatively low by

international standards. However, the small scope


for business related cost-deduction and an

institutionally weak tax administration substantially

worsen the overall tax climate in Russia.

The same tax rules and rates apply to both

Russian and foreign owned companies insofar

as a company is a Russian legal entity.

There is a flat corporate profits tax of 24%

regardless of sector and ownership.

Tax implications for non-residents depend on

the particular jurisdiction.

Capital gains on real-estate are treated as

ordinary income.

Capital losses can be carried forward for up to

5 years.

The purchase of significant stakes in Russian

companies requires an approval by the Anti-

Monopoly Service.

Russia offers investors some regional and

industry specific incentives irrespective of

residency.


Date Event

2008 1-5 Jan New Year 7 Jan Russian Orthodox Christmas Day 23 Feb Day of the Defenders of the Motherland 8 Mar International Women’s Day 1 May Spring and Labour Day 9 May Victory Day 12 Jun Day of Russia 5 Nov National Unity Day Notes: Due to Government regulation, the following week days are shifted (as non-working days): - Sunday May 4 to Friday May 2; - Saturday June 7 to Friday June13; - Saturday November 1 to Monday November 3. Source: HSBC, Bloomberg

Information sources

Central Bank of the Russian Federation www.cbr.ru Ministry of Finance www.minfin.ru MICEX www.micex.com

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Saudi Arabia has the most active and most liquid

FX market in the region. Saudi British Bank

(SABB) is an associated company of the HSBC

Group and is a leading player in the domestic

banking sector.

SABB has a full range of banking services

including personal, commercial, corporate, private

and Islamic banking, investment, treasury and

trade services.

Products offered include:

Spot FX

Forwards out to 1 year

Cross currency swaps and interest rate swaps

Options out to 1 year

Asset liability Islamic hedge

Islamic options

Islamic FX (outright and forwards)

Islamic money market instruments

SABB was the first Saudi Bank to issue a

European Medium Term Note (EMTN)

programme and has an S&P rating of A. It is also

the first to introduce Islamic Interest Rate swaps

to the market and has maintained its position as a

market leader.

Spot

Liquidity in the spot market is good with a normal

bid/offer spread of 2 pips (0.0002 SAR).

Forwards

The forwards market is the most liquid in the

region. Average size of a forward transaction is

USD25m.

Swaps

Interest rate swaps (IRS) are actively used from a

corporate hedging perspective. The average size

of an IRS is USD25m.

Options

The market for SAR FX options is starting to

develop. Transactions occur in a sporadic fashion,

although good size can be transacted at times. The

standard size of transactions is USD30m with a

maximum tenor of three years. Options liquidity

will increase as the market develops and more

banks provide continuity of pricing.


Onshore spot transaction USD 25m Onshore bid/ask spread 2 pips (0.0002 SAR) Onshore forward spread 10 pips (0.0010 SAR)


Saudi riyal (SAR)

The Saudi Arabian Monetary Agency (SAMA) operates a currency

peg to the US dollar at SAR3.75:USD1

The Saudi riyal is fully convertible and very liquid

The market is closed on Fridays

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FX framework The Saudi Arabian Monetary Agency (SAMA) is

the Saudi central bank and is responsible for

monetary policy and currency management. Since

1986, the Saudi riyal has been pegged to the US

dollar at SAR3.75:USD1, although it is fully

convertible and very liquid. The onshore market is

closed only on Fridays but as the Saudi working

week runs from Saturday to Wednesday, liquidity

is usually weak on Thursdays.


There are no restrictions on foreign exchange;

however, SAMA closely monitors all

transactions.

Taxation36 Saudi investors have ZAKAT at a rate of

2.5% deducted from their share of taxable

profits.

Overseas investors have tax deducted from

their share of taxable profits at a rate of 20%,

and pay 5% withholding tax on dividend

remittances.

The recipient of remittances made overseas

has to pay a withholding tax ranging from 5%

to 20% of the invoice value depending on the

type of payment such as; dividends, royalties,

and management fees.



Date * Event

2008 23 Sep National Day 27 Sep – 01 Oct Eid Al Fitr 6-10 Dec Eid Al Adha

Source: Reuters * Dates are based on the lunar calendar and may differ from those stated above

Information sources

Saudi Arabian, Monetary Authority www.sama.gov.sa Ministry of Finance www.the-saudi.net/saudi-

arabia.htm




Source: HSBC Notes: Times are based on Saudi Arabia local time = GMT + 3 hours

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HSBC has a full branch in Slovakia and is

involved in the Slovak market from trading floors

in Prague, London and New York, offering the

following suite of products:

Spot FX

FX forwards out to 1 year, with longer tenors

available upon request

FX options on a case by case basis

Cross currency swaps on a case by case basis

SKK fixed income and money market

products

Spot

The average daily volume in the spot market is

estimated at EUR2bn.

Forwards/FX swaps

The forward market for the koruna is still

developing. The best liquidity is found in tenors

of one year or less, although longer term forwards

are normally available upon request. Koruna

forwards are commonly quoted against both the

euro and the US dollar.

Plain vanilla fixed-for-floating interest rate swaps

are available, although the market is small and

liquidity is thin. The fixing rate is the Bratislava

Interbank Offered Rate (BRIBOR).

Options

Options are traded mainly against the EUR and

are offered out to five years with a standard ticket

size of EUR20m. The average daily turnover is in

the region of EUR200m and both vanilla and

exotic options are offered.


Onshore average daily volume EUR2bn Onshore spot transaction EUR10m Onshore bid/ask spread 30 pips (0.030 SKK) Onshore forward transaction Up to EUR20m Onshore forward spread 3M 20 pips (0.20 SKK)

12M 80 pips (0.80 SKK) Implied option volatility spread 0.35%


Slovak koruna (SKK)

The National Bank of Slovakia (NBS) maintains the currency in a

managed free float regime within the band of +/- 15% around

central EUR parity of 35.4424

The SKK is usually quoted against the EUR and is fully

convertible

On 1 May 2004 Slovakia joined the European Union, has been an

ERM member since 25 November 2005, and seeks to adopt the

single currency in 2009

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FX framework The National Bank of Slovakia (NBS) has

been given the responsibility of establishing

and implementing monetary policy and will

intervene during periods of excess volatility.

The Slovak economy underwent a major

change after the election of a pro-reformist

government in 1998. Since then, it has made

significant progress in developing market

mechanisms and attracting foreign investors.

On 1 May 2004, Slovakia joined the

European Union in the last wave of

enlargement.

As an ERM member since 25 November

2005, the koruna is maintained in a managed

free float regime within the band of +/- 15%

around central parity of initially 38.455,

which was revalued to 35.4424 as of 19

March 2007.

The currency is usually quoted against the

euro and is fully convertible.

Slovakia seeks to adopt the single currency in

2009.


The currency is fully convertible.

Taxation37 Slovakia has a flat tax regime at 19% for both

corporate and personal income tax and also

has a VAT.

There is no withholding tax on dividends.

Tax credit is reviewed on a case by case basis

while investment is still preferred in the less

industrial areas.


Date Event

2008 1 Jan New Year’s Day 6 Jan Epiphany 6 Apr Good Friday 9 Apr Easter Holiday 1 May International Labour Day 8 May Liberation Day 5 Jul SS.Cyril and Methodius 29 Aug National Day 1 Sep Constitution Day 15 Sep Holiday for Virgin Mary 15 Nov All Saints Day 17 Nov Commemoration of the Velvet Revolution 24 Dec Christmas Eve 25 Dec Christmas Day 26 Dec St. Stephen’s Day


Information sources

National Bank of Slovakia www.nbs.sk Ministry of Finance www.finance.gov.sk Slovak Investment and Trade Development Agency

www.sario.sk





Source: HSBC Notes: Times are based on Bratislava local time = GMT +2 hours

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From trading floors in New York, London and

Johannesburg, HSBC offers the following:

Spot and forward FX

FX options and structured forwards

Cross currency and interest rate swaps

Spot

The USD-ZAR spot market is amongst the most

liquid emerging market currency pairs traded.

Volumes are large and high interest rates and

good growth make the ZAR an attractive currency

for carry trades.

In times of normal market volatility, the currency

is highly correlated with commodity prices.

Continued reserves building should contribute

towards longer term currency stability.

Forwards/FX swaps

There is a well developed forward market for the

rand. The currency is deliverable and HSBC

trades actively out of New York, London and

Johannesburg. Forwards can be quoted out to ten

years, although the best liquidity is in tenors of

one year or less.

Options

There is good liquidity in the options market,

particularly for plain vanilla, with exotic options

also offered. Normal trades are USD20m, with the

market capable of absorbing significantly larger

transactions, and the maximum tenor is ten years.

Options expire at 10am New York time.

Structured transactions are increasing in

popularity given the high volatility of the currency

and the flexibility these products offer.


Onshore average daily volume USD4-5bn Onshore spot transaction USD10m Onshore bid/ask spread 50 pips (0.0050 ZAR) Onshore forward transaction USD 20m Onshore forward spread 3M 15 pips (.0015 ZAR)

12M 75 pips (0.0075 ZAR) Implied option volatility spread 3M ATM for 0.6%

(depending on market conditions)


FX framework The South African rand switched from a dual

exchange rate system to a single freely

floating currency in 1995. Since then, the

South African rand (ZAR)

The South African Reserve Bank (SARB) operates a managed

floating exchange rate system

Although the ZAR is not yet fully convertible, the SARB is taking

steps to gradually relax exchange controls

The Johannesburg Stock Exchange (JSE) has been granted

permission to establish a rand currency market to further increase

liquidity in the local FX market

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rand has experienced periods of significant volatility that prompted the South African Reserve Bank (SARB) to intervene.

Managing the exchange rate is the responsibility of the SARB, although the duty of establishing exchange rate policy falls to the Minister of Finance. The SARB still maintains the ability to intervene in the rand market as it sees fit, although its recent activity has centred on building foreign reserves as opposed to managing the exchange rate.

The SARB reports to both the Minister of Finance and Parliament, but is largely independent and has a mandate to control inflation via the setting of interest rates.

During the apartheid era, South Africa’s exchange controls were designed to prevent capital flight from the country.

Since 1994 South Africa has gradually eased exchange controls, in an effort to make the country more attractive to foreign investors. In the 2006 budget, the individual limit on capital outflows was increased from ZAR0.75m to ZAR2m per person while the FDI threshold for investments in Africa by South African corporates was reduced to 25% from 50%. The Ministry of Finance is seeking to remove the remaining foreign exchange controls; however, there is no formal timetable for doing so.

The South African government acknowledges the importance of FDI for economic development and is working towards making

the country more accessible. South Africa has also entered into numerous free trade agreements. Under the Development and Co-operation Agreement, South Africa and the EU will eliminate most customs duties on each others’ exports over a 12 year period. The United States is also in talks to liberalise trade with South Africa.

The SARB adopted an inflation targeting monetary policy framework in 2002, with a CPIX38 target of 3-6%. This was breached in Apr 2007 after increased consumer spending, which prompted further tightening of monetary policy. CPIX currently stands at 6.5% (July 07) with the Repo rate at 10%, up from 7% in 2006.

The Broad Based Black Economic Empowerment Act (BBBEE) of 2004 seeks to redress the history of South Africa and proactively bring historically disadvantaged people into the work environment. This is achieved via a balanced scorecard which measures companies on areas such as direct ownership and control, senior management, human resource development and indirect empowerment via procurement etc.


South African companies require permission from the SARB to invest overseas.

In most cases, there are no restrictions on capital inflows and incentives exist for

38 Consumer price index excluding interest rates on mortgage bonds


12am 2am 4am 6am 8am 10am 12pm 2pm 4pm 6pm 8pm 10pm 12am = least liquidity = moderate liquidity = most liquidity

Source: HSBC Notes: Times are based on Johannesburg local time = GMT +2 hours

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companies investing in certain industries or

regions including reduced interest rates,

reduced rentals for land and buildings, and

cash grants for relocation of plant and

employees.

Foreign exchange earned from exports must

be declared and exchanged for rand within

180 days.

Borrowing from offshore banks as well as

loan repayments are both subject to approval

by the SARB.

Taxation39 The base corporate tax rate is 29%.

Companies with a foreign ownership greater

than 75% are restricted to gearing based on

exchange control regulation 3.1(f).

In South Africa, a branch is not a separate

taxable entity. The incorporation fee applies

to the parent firm’s capital.



Date Event

2008 1 Jan New Year’s Day 1 Mar Local Government Election Day 21 Mar Human Rights Day 6 Apr Good Friday 9 Apr Family Day 27 Apr Freedom Day 1 May Workers Day 16 Jun Youth Day 9 Aug Women’s Day 24 Sep Heritage Day 16 Dec Day of Reconciliation 25 Dec Christmas Day 26 Dec Day of Good Will


Information sources

South African Reserve Bank www.reservebank.co.za Ministry of Finance www.finance.gov.za Southern African Development Community (SADC)

www.sadc.int

South African Government Portal www.gov.za

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The HSBC Group opened its first office in Turkey

in 1990. Since that time, HSBC has become an

established and successful provider of financial

services. HSBC is actively involved in the

Turkish lira market from Istanbul, New York and

London, offering the following products:

Spot FX

FX forwards and interest rate swaps up to 10

years

FX options

Spot

The TRY spot market is one of the most liquid

currencies in the EM world, due to high local

interest rates. However, with onshore FX

transactions subject to a 0.1% flat tax rate, FX

deals are preferred to be done offshore. While the

minimum ticket size in interbank deals is USD1m,

there is no restriction for real and legal entities.

Forwards/FX swaps

Lira forwards, which offer liquidity, trade on a

deliverable basis with unrestricted access granted

to non-residents in the local market. The best

liquidity is in forwards of one year or less.

Exchange traded USD-TRY futures are also

available in Istanbul.

Options

The TRY options market is deep and quotes can

be made out to ten years. Exotic options are

offered alongside plain vanilla options and the

standard ticket size is USD30m. Average daily

turnover is around USD1bn.


Onshore average daily volume USD4bn Onshore spot transaction USD5m Onshore bid/ask spread 3 pips (0.0003 TRY) Onshore forward transaction USD3-5m Onshore forward spread 3M 30pips (0.0030 TRY)

1yr 50pips (0.0050 TRY) 5yrs 200pips (0.0200 TRY)

Offshore average daily volume USD7.5bn Offshore spot transaction USD10m Offshore bid/ask spread 5 pips (0.0005 TRY) Offshore forward transaction USD10-15m Offshore forward spread 3M 10pips (0.0010 TRY)

1yr 20pips (0.0020 TRY) 5yrs 150pips (0.0150 TRY)

Implied option volatility spread 0.4%*

Note: Spreads are subject to change with market developments * volatility spreads depend on the liquidity Source: HSBC

New Turkish lira (TRY)

The Central Bank of Turkey (Türkiye Cumhuriyet Merkez Bankasi)

operates a managed free float with the right to intervene in the

currency market if it deems such action appropriate

The TRY is freely convertible

Turkey is seeking European Union membership, although a target

date has yet to be established

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FX framework The Central Bank of Turkey (Türkiye

Cumhuriyet Merkez Bankasi) and the

Treasury Under-Secretariat are responsible

for establishing monetary policy. Exchange

rate controls are established by the Under-

Secretariat of the Treasury, while the Central

Bank of Turkey acts as the administrator.

The central bank maintains the right to

intervene in the currency market if it deems

such action appropriate.

The central bank is not autonomous. The

degree to which the bank can act on its own is

largely dependent upon the administration in

power at the time.

Turkey is seeking European Union

membership, although a target date has yet to

be established.

In 2001 Turkey abandoned its crawling peg

system for the Turkish lira and allowed the

currency to float freely.

Relative to other emerging market countries,

Turkey is relatively liberal in its regulation of

cross border capital flows.

Decree 32 of 1989 is the legislation that

relaxed the rules on the flow of capital

internationally.


The TRY is freely convertible.

Companies and individuals may hold foreign

currency accounts.

Transfers greater than or equal to USD50,000

must be reported to the central bank within 30

days.

Residents and non-residents may borrow both

locally and abroad.


capital.


or dividends once all applicable taxes have

been paid.

Taxation40 Foreign investors must receive approval from

the General Directorate for Foreign

Investment (GDFI). Foreign investment is

allowed in most sectors, although there are

some restrictions on investing in a small

number of industries deemed to be of

strategic importance.

Foreign firms establishing a local corporation

are required to invest at least USD50,000 or

to have a local partner.

The Turkish government offers several

incentives to help entice international

investors, including tax credits, duty-free

zones and energy subsidies.

Turkey has entered into double-taxation

treaties with 48 countries (including the





Source: HSBC Notes: Times are based on Istanbul local time = GMT + 3hours

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United States and the United Kingdom) that

may provide some tax relief to certain firms.

The basic corporate tax rate is 20%, although

when withholding tax and fund levies are

added, the corporate tax rate comes to 32%.


Date Event

2008 1 Jan New Year 23 Apr National Sovereignty Day 19 May Ataturk Memorial Day 30 Aug Victory Day 29 Sep – 2 Oct Religious Day * 28 -29 Oct Republic Day * 8 Dec – 11 Dec Religious Day

Notes: * = Half days with holiday starting from 1.00 pm but banks try to minimise settlements with these dates; Weekends are Saturdays and Sundays Source: HSBC Bank A.S.

Information sources

The Central Bank of Turkey www.tcmb.gov.tr Turkish Treasury www.hazine.gov.tr

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The UAE has the most liquid and most developed

FX market in the Gulf after Saudi Arabia. From

its headquarters in Dubai, HSBC Bank Middle

East provides a wide range of banking services for

both corporate and individual customers in the

UAE. HSBC’s dealing room provides a full range

of treasury products including foreign exchange

and money market instruments which include:

Spot FX onshore

Spot FX offshore


Spot

The AED is fully convertible in the spot market.

Forwards

The forward market extends to one year, with

longer maturities available on request. Onshore

banks can lend AED deposits to offshore banks,

but are subject to a 30% reserve that needs to be

maintained at the central bank.

Swaps

Onshore banks can lend AED via swaps to

offshore banks.

Options

Transactions in the options market occur in a

sporadic fashion, and options are offered mainly

against the USD. The standard size of a

transaction is around USD10m with options

offered out to two years.


Onshore average daily volume USD500m Onshore spot transaction USD25m Onshore bid/ask spread 10 pips (0.0010 AED) Onshore forward transaction 1Y USD25m Onshore forward spread 20 pips (0.0020 AED)


FX framework The central bank of the United Arab Emirates

formulates and implements the country's

banking, credit and monetary policy. Its

policy anchor is the AED peg to the dollar,

which has been maintained at the same rate

since 1980.

The central bank sells USD against AED at

3.6730 and buys USD at 3.6720.

There are no restrictions on foreign exchange,

although the central bank closely monitors the

market.

UAE dirham (AED)

The central bank of the United Arab Emirates pegs the dirham to

the USD. The exchange rate has been maintained since 1980

The AED is fully convertible in the spot market

Onshore banks can lend AED deposits to offshore banks, but are

subject to a 30% reserve maintained at the central bank

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There is no clearing on Fridays.


The AED is fully convertible and there are no

restrictions on exchange or repatriation.

Taxation There are no local taxes or withholding

regulations applied to AED transactions.


Date Event

2008 1 Jan New Year’s Day 10 Jan Islamic New Year 20 Mar The Prophet’s Birthday 30 Jul The Prophet’s Ascension 1-2 Oct Eid al-Fitr 2 Dec National Day 8-10 Dec Eid al-Adha

Source: Reuters

Information sources

Central Bank of the United Arab Emirates www.cbuae.gov.ae Ministry of Finance and Industry www.uae.gov.ae/mofi Ministry of Economy and Commerce www.uae.gov.ae/moec




Source: HSBC Notes: Times are based on Dubai local time = GMT +4 hours

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Latin America

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HSBC Bank Argentina is a member of the HSBC

Group and one of the largest financial institutions

in Argentina. HSBC is active in Argentine

markets from Buenos Aires and New York,


Spot FX41


Non-deliverable options on a case-by-case

basis

Domestic money markets

Spot

The spot exchange rate is traded locally in two

markets, the MAE (Mercado Abierto Electrónico)

and the MEC (Mercado Electrónico de Cambios).

The MAE is a pure bank to bank market, while

the MEC is intermediated by brokers. During the

first ten months of 2007 the approximate

combined average daily volume was ARS600m

(ARS350m MAE and ARS250m MEC). The

monetary authority, and to a lesser extent the

Treasury, intervene in both markets. In 2007 the

central bank has purchased more than USD9bn.

41 Spot available onshore only

Forwards/ FX swaps

The offshore market consists exclusively of non-

deliverable forwards (NDFs) with an estimated

daily turnover of approximately USD60-80m in

the NDF market.

Options

The currency options market for the Argentine

peso is small and illiquid. Prices will be made on

a case-by-case basis, depending on prevailing

conditions.


Onshore daily average spot volume ARS600m Monthly average onshore spot transaction

ARS11.5bn

Bid/Ask spread 20 pips (0.0020 ARS) Onshore forward transaction USD65m Bid/Ask spread 100 pips (0.010 ARS) Monthly average NDF transaction USD1.4bn NDF spreads 3M 100 pips (0.010 ARS) Implied option volatility spread 1.5 vols


Argentine peso (ARS)

The Banco Central de la República Argentina (BCRA), Argentina’s

central bank, manages its currency in a managed floating regime

The Argentine peso is most commonly traded offshore as a non-

deliverable forward

The Argentine government has implemented numerous currency

controls to smooth currency volatility

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The central bank has been pursuing a

managed floating regime for the exchange

rate since convertibility was abandoned in

December 2001.

The monetary authority intervenes in the FX

market in order to maintain a stable, but

relatively weak, real exchange rate. The

trade-weighted FX rate is assumed to be used

by the central bank as a benchmark.

Background

Historically, there has been significant

volatility in the Argentine peso market since

the elimination of the fixed exchange rate

system. As a result, the Argentine government

has implemented numerous currency controls

to stem capital flight and curtail further

declines in the peso. More recently, however,

the prevailing pressure has been for the peso

to appreciate given the excess supply of

dollars in the market, prompting mostly USD

buying from the BCRA.

Fixing mechanism

The fixing is two business days prior to the

value date of the forward.

The fixing rate is determined by the Emerging

Market Trade Association (EMTA) based on

the arithmetic mean of quotes submitted by at

least 5, but no more than 14, randomly

selected banks. If at least 8 banks are used,

the highest and lowest quotes will be

removed. EMTA calculates the rate based on

the midpoint of the quotes at approximately

12 noon in Buenos Aires.


Onshore-onshore

Spot

It is mandatory to convert 100% of the

foreign exchange receipts from goods and

services exports to local currency through the

FX market.

Exporters have a range of 60 to 360

consecutive days to convert foreign exchange

receipts from goods exports depending on the

product type.

The BCRA provides an additional 120

business days to settle the foreign exchange

recipes if the exporters go through the FX

market. The term is extended to 180 business

days if the purchaser fails to pay the

transaction and the foreign exchange receipts

result from export credit insurance.

Services export receipts, on the other hand,

have 135 business days to be converted into

local currency via the FX market.

In terms of commodity exports, only 30% of

oil export proceeds are subject to the

mandatory repatriation rules, while mining

proceeds such as copper are exempt.


Futures transactions in regulated markets,

forwards, options and other derivatives




Source: HSBC Notes: Times are Buenos Aires local time = GMT –3 hours

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transactions that are settled in the country and

cleared in domestic currency are not subject

to any foreign exchange requirement.

The central bank allows FX transactions for

the purposes of futures settlements,

guarantees, forwards, options and other

derivatives, as long as they are traded on-

shore and settle in ARS.

Onshore-offshore

The purchase of foreign exchange to be

transferred abroad by non-residents are

permitted if the amount does not exceed the

equivalent of USD5,000 per calendar month.

These must be done through authorised

institutions.

In terms of receipts from portfolio investment

liquidation, non-resident investors are

allowed to remit foreign exchange overseas as

long as it does not exceed the equivalent of

USD500,000 per calendar month per

individual or legal entity and must done

through authorized institutions so as to be

exempt from BCRA specific authorisations.

Offshore-onshore

Foreign exchange inflows into the foreign

exchange market are allowed as long as they

are converted in the FX market. However,

investors are required to make a deposit in a

non-remunerative account in a local financial

institution for the equivalent of 30% of the

total amount for 365 days. Exemptions from

this regulation include funds targeting

primary issues and foreign direct investment.

Repatriation

The limit for repatriation is USD2m per

calendar month per individual without BCRA

specific authorisation.

Resident firms (except for pension funds) and

individuals may purchase up to USD2m per

month without CB approval.

Pension funds are allowed to buy or sell up to

USD20m per calendar month.

Taxation Argentina has been actively liberalising its

policies on foreign investment since the late

1980s. Today, Argentina is relatively open

and receptive to foreign investors, but

ongoing economic instability in the country

has served as a deterrent.

Non-resident investors receive the same

treatment as resident investors.

Argentina has discontinued most investment

incentive programs, but there are still regional

and industry-specific incentives available.

Tax laws in Argentina are prone to change,

and tax professionals should be consulted for

up to date information.

Foreigners are allowed 100% ownership of

local firms.

Firms with more than 49% foreign equity are

classified as foreign owned.

Foreign investors are not required to obtain

government approval prior to investing.

Mergers and acquisitions of firms with local

income of ARS200m or more require approval

from the Argentine anti-trust tribunal.

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Additional Information Holiday calendar

Date Event

2008 1 Jan New Year’s Day 21 Mar Easter 24 Mar National Day of Memory for Justice and Truth 2 Apr Veterans Day 1 May Labour Day 25 May Motherland’s Day 16 Jun Memory of General Belgrano 9 Jul Independence Day 18 Aug Memory of San Martin 12 Oct Columbus Day 6 Nov Bank Holiday 8 Dec Immaculate Conception 25 Dec Christmas Day

Source: Interior Ministry

Information sources

Central Bank of Argentina www.bcra.gov.ar Ministry of Economy and Production www.mecon.gov.ar Fixing page EMTA website

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HSBC Bank Brasil, a member of the HSBC

Group, has one of the largest private banking

networks in Brazil, offering nationwide coverage.

HSBC is able to facilitate the entire foreign

investment process for clients, from the

investment account opening process, including

custody and legal representation service, to a

Brazilian Merchantile and Futures Exchange

(BM&F) brokerage house. HSBC is also active in

Brazilian markets from Sao Paulo and New York

offering the following products.

Spot FX42

Non-deliverable forwards out to 2 years43

FX options

Interest rate and cross-currency swaps

Money market and fixed income products

42 Spot FX transactions can only be carried out onshore

43 Onshore forwards are readily available for onshore entities out to 2 years and up to 4 years on request

Spot

The onshore market is liquid, with approximate

daily turnover of USD8bn. The market in Brazil is

officially open from 9.00am-1.00pm and 2.30pm-

4.30pm local time, although there is electronic

trading available from 9.00am-5.00pm, local time.

Spot can only be traded onshore.

Forwards/FX swaps

The most common forward products in the

offshore market are USD-settled non-deliverable

forwards (NDFs). The offshore market is

generally liquid, with the best liquidity in tenors

of one year or less.

The most common interest rate swap is a fixed

rate US vs. CDI (Interbank Deposit Certificate

interest rate), net settled in USD offshore. The

CDI is published by the Central Securities

Depository for Brazilian Fixed Income and

Derivatives (CETIP). This swap allows offshore

clients to access the local interest rate market

without taking on exchange rate risk. HSBC

offers cross-currency swaps in the Brazilian

market, as well as a BRL-linked access note,

Brazilian real (BRL)

The Banco Central do Brasil (BCB), the Brazilian central bank,

abandoned its crawling peg and opted for a freely floating

currency in 1999

The most common forward products in the offshore market are

USD settled non-deliverable forwards (NDFs)

The onshore market is liquid, with approximate daily turnover of

USD8bn

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whereby HSBC USA issues a synthetic note

linked to local bond risk.

Options

Non-deliverable options (NDOs) are available in

the offshore market. HSBC offers vanilla options

both on and offshore. In addition, exotic options

on the BRL are offered offshore.


Onshore average daily volume (spot market) USD8bn Onshore spot transaction USD3-5m Onshore bid/ask spread 10 pips (0.0010 BRL) Onshore forward transaction USD3-5m Onshore forward spread 10 pips (0.0010 BRL) Offshore average daily volume USD0.3b outright, USD0.6b swaps NDF transaction USD5m NDF spreads 1M tenor 10 pips (0.001 BRL) Implied option volatility spread 1M 0.5vol


FX framework The Banco Central do Brasil (BCB), is Brazil’s

central bank and is responsible for managing

currency intervention and setting short-term

interest rates. The Monetary Policy Committee

(COPOM) sets the target for the SELIC rate,

which is the overnight inter-bank loan rate

guaranteed by government bonds traded via its

special system of liquidation and custody. The

BCB also monitors foreign investments and

currency exchange, although it is the National

Monetary Council (CMN) that actually sets

exchange control mechanisms. Over the last ten

years, the CMN and the BCB have been gradually

removing regulatory restrictions from the

Brazilian foreign exchange markets.


The BCB has employed a floating exchange

rate regime since January 1999.

BCB can intervene through the spot and/or

futures markets.

USD-BRL is the only currency pair regularly

traded in the domestic interbank spot foreign

exchange market. Interbank spot FX

transactions with other convertible currencies

are regularly booked on international FX

markets between domestic and foreign

financial institutions (e.g. EUR-USD, USD-

JPY).

The reference rate for the interbank spot

USD-BRL market is the PTAX, calculated

and reported by the BCB.

Background

Before 1999, the real was tied to a crawling

peg adjusted according to the inflation

differential between the US and Brazil.

In January 1999, the band system was

abandoned.

In March 2005, the Monetary Policy Council

approved several changes in the FX

guidelines found in the Exchange and Foreign

Capitals Market Regulation (RMCCI). This

was a significant step towards a less regulated

FX environment.

Fixing mechanism

BRL-settled NDFs are available in the

onshore market.




Source: HSBC Notes: Times are Sao Paulo local time = GMT –3 hours;

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Offshore Brazilian NDFs are fixed two days

prior to settlement through the PTAX rate

posted to the BCB’s electronic registration

and settlement system (SISBACEN).

Onshore forwards are fixed one day before

settlement.

The fixing rate is also published on Reuters

page ‘BRFR’.

Exchange-traded real futures are available in

both Chicago and Sao Paulo.


In March 2005, the foreign exchange

normative framework was completely

renewed.

Foreign currency transactions equal to or

larger than USD10,000, must be reported to

the BCB.

Onshore-onshore

Spot

Every FX transaction must be registered with

the BCB and booked against a financial

institution authorised by the BCB.

Interbank transactions between Brazilian

financial institutions can be booked over the

counter (OTC) or through the BM&F Foreign

Exchange Clearinghouse (BMC), operating

since April 2002. Currently over 70% of the

gross volume of the interbank spot FX market

is settled through the BMC.

Every non-interbank FX transaction must be

linked to an authorised underlying transaction

by way of documents filed with or at least

readily available to the authorised financial

institution with which the FX transaction is

booked.

Non-interbank spot FX transactions must be

booked OTC against a financial institution

duly authorised by the BCB. Non-interbank

spot FX is available for any currency pair

formed by BRL and a convertible currency.


Onshore deliverable forwards may be traded

in the non-interbank market between BRL

and any other convertible currency. Tight

regulatory restrictions surrounding these

trades have limited their tenors, although

these restrictions are gradually being eased.

At present, regulations allow deliverable

trades up to a 360 day tenor with some

penalties for early unwinds. Deliverable

forwards related to Brazilian exporters and

interbank transactions are allowed for tenors

up to 720 days but do not allow split value

dates.

Non-deliverable forwards and options, as well

as interest rate swaps and cross-currency

swaps, are available in the onshore market.

Exotic options are also offered, but only by a

few banks, among which HSBC is one.

In order to avoid backdate deals, all OTC

operations must be registered at an

independent bank-sponsored agency, called

the Board of Custody and Settlement

(CETIP), which also monitors market prices

of plain vanilla deals. In addition, BCB and

CVM (Brazilian Securities Commission) can

have access to all deals registered at CETIP,

which grants the regulating organs absolute

transparency.

Offshore-onshore

Foreign investors can access the Brazilian

derivatives markets by opening an investment

account regulated by the National Monetary

Council (CMN) Resolution number 2689

according to which a foreign investor must

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have a custodian and legal representative

entity in Brazil. In addition, a foreign investor

interested in trading derivatives through the

BM&F must open a brokerage account in a

Brazilian brokerage house.

Both foreign and local firms may borrow

internationally, subject to registration and

approval by the BCB.

Firms can now maintain up to 30% of their

export revenues in financial institutions

abroad. The remaining amount must be

cleared within 360 days after the date of

payment to the exporter.

Onshore-offshore

According to FX rules issued by BCB and

CMN, access to offshore derivatives markets

is only permitted for hedging purposes, which

should be documented by the bank carrying

out the FX deal.

A bank can access this market but it must

match each deal with an onshore deal closed

by a counterpart and with documented

evidence of hedging purposes (back to back).

All expenses generated in OTC offshore

derivative deals are non-deductible according

to Brazilian tax legislation. This restriction

makes trading through the auction market

more viable.

In order to make payments abroad, firms must

provide documentation proving that they have

paid all applicable taxes.

Offshore-offshore

The most tradable instruments offshore are

NDF and cross-currency swaps (CDI versus

USD fixed).

Repatriation

With the proper documentation, profits may

be freely remitted.

Foreigners can buy Brazilian sovereign bonds

without paying withholding taxes (previously

15%), though they must pay a financial

transaction tax (Provisional Contribution on

Financial Transactions or CPMF) to move

cash in and out of the country.

Taxation44

Brazil has become increasingly open to foreign

investments over the past decade. Large scale

privatisation, along with the opening up of

previously inaccessible industries, such as energy,

has resulted in a significant increase in foreign

investments.

Several investment incentives exist, mostly geared

towards rural development, although there are

some incentives for investing in specific

industries. Companies importing raw materials for

processing and re-export can request the

suspension of import duties.

Foreign capital in Brazil is governed by law

#4131 (The Foreign Capital Law).

All incoming investments must be registered

with the Central Bank Foreign Capital

Registration and Supervision Office (FIRCE).

Corporate taxes are regulated by the National

Tax Code of 1966.

On shore swaps are subjected to a

withholding tax.


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Date Event

2008 1 Jan New Years Day 4 Feb Carnival 5 Feb Carnival 21 Mar Easter 21 Apr Tiradentes 1 May Work day 22 May Corpus Christi 7 Sep Independence Day 12 Oct Our Lady of Aparecida 2 Nov All Souls' Day 15 Nov Proclamation of Republic 25 Dec Christmas Day

Source: ANDIMA – National Association of Financial Market Institutions

Information sources

Banco Central do Brasil www.bcb.gov.br Ministry of Finance www.fazenda.gov.br CETIP www.cetip.com.br Reuters Fixing page BRFR Brazilian Mercantile and Futures Exchange www.bmf.com.br Brazilian securities commission (CVM) www.cvm.gov.br

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HSBC Bank (Chile) S.A. is an active participant

in the Chilean market, both onshore and offshore.

HSBC has trading floors located in both New

York and Santiago, offering the following suite of

products:

Spot FX and FX forwards45


FX options

Cross-currency swaps, interest rate swaps and

money market products

Spot

Spot transactions can only be done onshore.

HSBC is consistently among the top three players

in the interbank CLP FX spot market. This allows

HSBC to provide highly competitive two way

quotes.

45 Offshore entities cannot trade with onshore counter parties

Forwards/FX swaps/Money markets

In the offshore market, the peso can only be

traded as non-deliverable forwards (NDFs).

A conventional onshore forward market also

exists, but is only available to residents.

Through its office in Santiago, HSBC can offer

CDs, time deposits, repos, CLP and UF46 interest

rate swaps and FRAs against the Camara47

floating index, USD/CLP and USD/UF cross

currency and basis swaps, Chilean Inflation Index

Forwards (over UF index) and bonds forwards

(FRAs over BCUs and BCPs48). HSBC offers

swaps offshore as non-deliverables.

Options

Non-deliverable options are available on the

Chilean peso. Onshore, deliverable options are

also available.

46 Unidata de Formento (UF), an inflation-linked unit of account

47 Camara is the average of interbank peso interest rates (Act/360)

48 BCU are BCC bonds denominated in UF. BCP are BCC bonds denominated in CLP

Chilean peso (CLP)

The CLP has been a free floating currency since 1999, although

the central bank, Banco Central de Chile (BCCH), intervenes

occasionally to smooth currency volatility

In the offshore market, the peso trades on a non-deliverable

basis, while onshore there are active spot and forward markets

The onshore spot market is reasonably liquid with an estimated

daily volume of USD3-4bn

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Onshore average daily volume USD3.5bn Onshore spot transaction USD5m Onshore bid/ask spread 30 pips (0.30 CLP) Onshore forward transaction USD10m Onshore forward spread 10 pips (0.10 CLP) Offshore average daily volume USD1.5-2.0bn NDF transaction USD5m NDF spreads 1M 30 pips (0.30 CLP)

12M 150 (1.50 CLP) Implied option volatility spread 1M 1% vol



The CLP is a floating non-deliverable

currency.

The exchange rate is determined in the

interbank foreign exchange market, through

two systems, OTC and Datatech, and also

through on-phone trades.

Background

During the 1990s, CLP was regulated using a

floating band regime. In order to reduce

speculative inflows and the impact on FX and

monetary policies, the BCCH used FX

restrictions as exchange policy in the form of

unremunerated reserve requirements (URR,

or encaje) on foreign loans.

In 1998, a sudden stop in capital inflows led

the BCCH to rethink currency and capital

control policy, to reduce the URR to 10% then

to 0%, and to widen the band on a daily basis.

The loosening in restrictions extended

through into 1999 and included the scrapping

of the requirement of seeking BCCH’s

approval to sell USD from foreign loans. As

such, this increased the flexibility for local

banks to invest abroad.

In 2000, banks were allowed to trade interest

rate derivatives. Requirements to issue bonds

in the offshore market were also reduced.

In 2001, the majority of the remaining FX

restrictions were eliminated.

In 2006, local banks were allowed to trade FX

and interest rate options.

Fixing mechanism

The fixing rate (observado) is an average of

all spot transactions between 9:00am and

1:30pm local time, two days prior to the value

date of the forward.


Foreign exchange regulations are outlined in

the central bank’s Compendium of Foreign

Exchange Regulations. Chapter 14 details

regulations applicable to loans, deposits,

investments and capital contributions from

abroad.

There are basically two foreign exchange

markets, the “formal” and the “informal”

market. Transactions, such as settlements of

derivatives with non resident counterparties

or remittance of interest or capital of external

loans, are required to be done through an

entity forming part of the formal market




Source: HSBC Notes: Times are Santiago local time = GMT –4 hours

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(authorized banks). Other transactions can be

freely made in the informal market.

The Chilean constitution mandates that no

arbitrary discrimination shall occur in

economic matters. Decree Law 600 (DL600)

reinforces this, stating that foreign investors

under its regulations shall receive the same

treatment as resident investors.

Foreign investment may enter Chile either

under Decree Law 600 (DL600) or under

Chapter XIV of the Central Bank Foreign

Exchange Regulations. In practice, the majority

of investments are carried out under DL600.

In order to invest in Chile under DL600,

authorisation from the Foreign Investment

Committee is required.

There are some restrictions on foreign

ownership of certain industries, most notably

in the media sector.

Chile does offer some incentives to investors,

most of which are related to job creation in

undeveloped areas.

The BCCH removed almost all remaining

exchange controls in April 2001.

There are no restrictions on residents

borrowing internationally.

The BCCH publishes the observado rate,

which is used for NDF fixings, tax and

accounting purposes.

Repatriation


capital.

Profits may be remitted internationally.

Taxation49 Corporate earnings are taxed in two stages:

17% when income is earned, and 35% (less a

credit equal to the tax paid in the first stage)

at distribution or repatriation of dividends.

Companies investing under DL600 can

choose a fixed tax rate of 42%.

Export incomes must be reported to the

BCCH quarterly.

The Chilean government maintains several

free trade zones in Iquique, Punta Arenas and

Arica.


Date Event

2008 1 Jan New Year’s Day 21 Mar Good Friday 1 May Labour Day 21 May Battle of Iquique/Navy Day 29 Jun Corpus Christi 15 Aug Saints Peter and Paul 18 Sept Independence Day 19 Sept Army Day 12 Oct Columbus Day 1 Nov All Saints Day 8 Dec Inmaculate Conception 25 Dec Christmas Day 31 Dec Bank Holiday

Source: HSBC

Information sources

Central Bank of Chile www.bcentral.cl Ministry of Finance www.minhda.cl Chile Banks Association www.abif.cl Bloomberg Fixing Page PCRCDOOB <index> Reuters Fixing Page CLPOB=


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HSBC is involved in Colombian markets through

the acquisition of G. F. Banistmo, with a presence

in 10 Colombian cities. HSBC has access to local

markets from its desk in Bogota and from its New

York trading floor, offering the following

products:

Spot FX and FX forwards

Non deliverable forwards out to 1.5 years

FX options

Cross currency swaps, interest rate swaps and

money market products

Spot

There is a liquid spot market onshore. Spot settles

on a t+0 basis. Trading hours are from 13:00 –

18:00 GMT, and the market is quoted mainly

through an electronic system called Set FX.

Forwards/FX swaps

There is good liquidity in the FX onshore forward

market out to 18 months, with best liquidity in

tenors up to 3 months. Forward rates are available

for delivery or cash settlement, and on an NDF

basis are traded from our New York desk.

Options


Colombian peso through the HSBC office in New

York.

Swaps and bonds

The Colombian swaps markets are developing and

offer excellent liquidity. HSBC Colombia is

active in currency swaps as well as local

sovereign debt markets. Interest rate swaps and

CCS are offered through our office in New York.


Onshore average daily volume USD500m Onshore spot transaction USD0.5 to 1m Onshore bid/ask spread 3 pips (3 COP) Onshore forward transaction USD2m Onshore forward spread 5 pips (COP 5) Offshore average daily volume USD300m NDF transaction USD5m NDF spreads 4-5 pips (COP 4-5) Implied option volatility spread 2.0 – 2.5% vol


Colombian peso (COP)

The Colombian central bank, Banco de la Republica (BR),

operates a managed floating currency regime

In the offshore market, the COP trades on a strictly non-

deliverable basis

If COP moves more than 2% from a 20 day moving average rate

in either direction on any given day, the central bank will intervene

to mitigate both excessive strength and weakness in the COP

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Monetary policy is implemented within a

flexible exchange rate regime that is governed

by intervention rules to maintain an adequate

level of international reserves, to limit excessive

volatility of the exchange rate in the short term,

and to moderate excessive appreciation or

depreciation of the nominal exchange rate.

Intervention mechanism

The BR uses several intervention

mechanisms, including the auction of options

and buying or selling spot directly in the

foreign exchange market.

Background

Foreign exchange regulations were

established by Law 9 of 1991 as well as by

central bank resolutions 21 of 1993 and 8 of

2000. The central bank monitors all incoming

and outgoing capital flows.

Due to recent changes in Colombian tax laws,

most offshore banking institutions no longer

do business onshore.

The best market liquidity is between 11 am

and 1 pm local time.

Fixing mechanism

The Reuters page for the NDF fixing rate is

CO/COL03.

The fixing rate is a weighted average of

morning spot trades the day of maturity with

settlement 1 day after. This rate is reported by

Superintendencia Financiera.


It is required that all residents (Colombian or

foreign) submit an Exchange Declaration

when making a foreign exchange transaction.

Exchange Declarations of transactions made

through intermediaries should be presented to

that specific entity.

The following FX transactions must be

channelled through the Regulated Exchange

Market:

Merchandise trade related transactions

External fund raising

Inward and outward FDI and investment

income

Derivatives operations

Financial investments, including

securities

Bonds issued by Colombian companies

outside Colombia

Exports can be financed through anticipated

buyer’s payments or financial debt in foreign

currency with market intermediaries or foreign

financial entities registered with the BR.

For offshore export financing, a deposit

should be made at the BR. This has to follow

instructions given by the central bank’s board

of directors in its latest regulatory mandate.

External financing can also be made through

securities placement in foreign capital


12am 2am 4am 6am 8am 10am 12pm 2pm 4pm 6pm 8pm 10pm 12am = least liquidity = moderate liqu idity = most liquidity

Source: HSBC Notes: Times are Bogota local time = GMT – 5 hours

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markets, with an obligation to make a

regulatory deposit at the central bank.

Currency transfers between foreign

companies and their branch offices in

Colombia can only be made for assigned or

supplementary capital transfers, profit

reimbursements, external commerce,

reimbursement operations of goods and

service payments within tax laws.

Exchange agents and other residents can

transact FX derivatives operations with other

local and foreign professional agents that

have the authority to do so by BR.

These operations can only be made in the

following currencies: DKK, NOK, SEK,

AUD, CAD, USD, NZD, EUR, CHF,

GBP, and JPY.

Authorized operations are forwards,

swaps, options, caps, floors and collars.

Colombian residents can hold foreign

currency deposit accounts provided that the

foreign exchange was acquired in the open

FX market (as opposed to the Regulated

Exchange Market).

Foreign exchange acquired through the

Regulated Exchange Market must be held in

deposit accounts registered in the BR under

the name of Compensation Current Accounts.

Foreign exchange intended to fund foreign

capital investment in Colombia must be

funnelled through foreign exchange market

intermediaries or through current clearing

accounts.

For a transaction to qualify as foreign capital

investment in Colombia:

The investor must meet the condition of

not being a resident by the investment

date.

The investment must be of a type

authorized by law, and the resources must

be submitted to the proper control and

supervision agencies upon request.

Foreign capital investment may be FDI or

portfolio investments, including

convertible bonds, and other securities

registered in the national securities

record.

Taxation50 Colombian taxes are divided into two

categories: national and regional taxes.

National taxes include income tax, windfall

tax, wealth tax, sales tax (VAT), tax on

financial transactions, and stamp tax. Regional

taxes include industry and commerce tax,

property tax, and registration tax.

The income tax is considered a single tax,

although it has two components: income and

windfall. The income tax rate is 34% for 2007

and 33% for 2008. Certain income expressly

defined by the law is not subject to income

tax.

In the countries that are part of the Andean

Community of Nations (CAN), income

obtained by any person is only taxed in the

member country where such income was

originated.

Some examples of windfall income are:

Profits from the sales of fixed assets

owned for over two years.

Profits from the liquidation of companies.

Profits from lotteries, raffles, bets and

similar chance games.


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The wealth tax is also known as the capital

tax and is provisional until 2010. The tax is

payable by individual and corporate

taxpayers, for wealth owned on 1 January

2007, where the taxpayer’s net worth is equal

to or exceeds COP3bn.

The sales tax (VAT) is a tax on services

rendered and goods sold and imported. As a

value added tax therefore, in calculating this

tax, the taxpayer is allowed to discount the

VAT paid for goods and services used in

taxed operations. The general rate is 16%.

Colombia has subscribed to international and

bilateral agreements aimed at avoiding double

taxation with Spain and to agreements

regarding air and sea transportation matters

with the United States, Argentina, Germany,

Chile, Brazil, Italy, France and Venezuela.

Additional information Holiday Calendar

Date Event

2008 1 Jan New Year’s Day 7 Jan Epiphany day (observed) 20 Mar Holy Thursday 21 Mar Good Friday 24 Mar St. Joseph’s Day 1 May Labour Day 26 May Ascension Day (observed) 2 Jun Corpus Christi (observed) 30 Jun SS Peter and Paul (observed) 7 Aug Battle of Boyacá 18 Aug Assumption Day (observed) 13 Oct Columbus Day (observed) 3 Nov All Saints Day 17 Nov Ind. Of Cartagena 8 Dec Immaculate conception (observed) 25 Dec Christmas Day

Source: HSBC

Information Sources

Banco de la República de Colombia www.banrep.gov.co Colombian Trade Bureau www.coltrade.org Reuters Fixing page CO/COL03 Finance Superintendence www.superfinanciera.gov.co Colombian Stock Exchange www.bvc.com.co Ministry of Finance www.minhacienda.gov.co

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Through its November 2006 acquisition of Grupo

Banistmo, Central America’s leading financial

services organisation by assets, HSBC is now able

to offer a full-service banking and insurance

group with operations in Honduras, Panama,

Costa Rica, Nicaragua, El Salvador and

Colombia. Its core activities are retail, consumer

and commercial banking, and insurance. HSBC is

an active player in the local FX market.

Spot

USD purchases are undertaken on a daily basis

through the central bank´s USD auction.

Commercial banks act as intermediaries delivering

customer bids to the auction. HSBC is ranked

among the top 3 banks in this service. HNL

funding is requested on the day of the auction and

the USDs are delivered the following day.

USD sales are also controlled by the central bank

of Honduras. On a daily basis the central bank

provides the bid rate to the whole financial

system. At the end of each business day, all

USDs purchased have to be delivered to the

central bank. In this way, banks do not hold any

FX positions overnight.

Forwards/FX swaps

There is no market for forwards, FX swaps or

options.

FX framework All transactions related to the purchase or sale

of USDs in Honduras are regulated by the

SAPDI (Public FX auction system), issued by

the central bank of Honduras.

Pricing for the USD auction consists of a base

price and a 7% band, above and below the

base price. The base price is modified by the

Central Bank of Honduras every 5 auctions.

For the past few years price has been pegged

to the lower end of the band.

The USD/HNL rate is set by the central bank

and bid rates are provided by the central bank

on a daily basis.

Retail sales up to USD10,000 are priced at the

bid rate plus a 0.7% fee. Purchases surpassing

Honduran lempira (HNL)

The Central Bank of Honduras maintains control of the HNL

through a daily USD auction. Dollars are delivered one day after

the auction takes place

Pricing for the USD auction consists of a base price and a 7%

band above and below the base price. The base price is modified

by the Central Bank of Honduras every 5 auctions

The USD auction is only available for Honduran residents and

locally domiciled companies

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the USD10,000 threshold must be transacted

through the USD auction.

Customers can purchase from USD10,000 up

to USD1.2m per auction. Banks are allowed

to sell to customers up to a maximum of

USD10,000 through their branches to attend

the needs of personal financial services

customers.

The mechanism for purchasing USDs is

available only to Honduran residents and

locally domiciled companies.


Dividends & profits

Dividends and profits can be remitted

periodically to USD with prior authorization

from the Central Bank of Honduras.

Capital

As long as minimum capital requirements are

complied with, there are no restrictions on

capital repatriations. These require the prior

approval from the regulating entity.

Regulations

Honduras maintains strict control on its

currency. In spite of this, local corporations

and individuals are allowed to maintain

foreign currency denominated accounts in the

local banking system (mostly USD and

occasionally EUR).

All USDs generated by exports have to be

reported and sold back to the Central Bank of

Honduras. This is performed through the

commercial banks in the country.

Companies and individuals are allowed to

keep USD accounts abroad; however, foreign

financial institutions are not allowed to

operate in the country to take deposits from

Honduran customers.

No entities outside of Honduras are allowed

to purchase USD through the daily FX

auction. Foreign companies and citizens are

allowed to sell USDs at central bank bid rates

thorough the commercial banks.

Taxation51 The base tax on corporate profits is 25%. An

additional 5% is applicable to those

corporations whose income surpass HNL1m.

A 35% withholding tax is applicable to

services provided by foreign companies or

individuals.

A 5% withholding tax is applicable to interest

payments to foreign financial institutions.


Date Event

2008 1 Jan 27-28 Mar 14 Apr 1 May 25 Sep 6 Oct 27 Oct 25 Dec

New Years Eve Easter Holiday Dia de las Americas Labor Day Independence day Dia del Soldado Dia de las Fuerzas Armadas Christmas Day

Source: Honduran Banking Association (subject to changes from the Central Bank) Information sources

Central bank website www.bch.hn Ministry of Finance Website www.sefin.gob.hn


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Through the acquisition of GF Bital in Mexico,

HSBC has unparalleled access to local liquidity

and expertise. With trading floors in Mexico City,

New York and around the world, HSBC offers a

full suite of products including:

Spot FX

Forwards out to five years

Currency options out to five years

Cross currency swaps out to twenty years

Money market products

Spot

The liquidity in the spot market is high with a

daily volume traded around USD15bn. Significant

flows are also transacted in the FX swaps and

forwards markets. Normal spot transactions are

USD5m.

Forwards/FX swaps

The liquidity of hedging instruments has

increased steadily as Mexico's trade relationship

with the international community has grown.

There is a wide array of exchange-traded and

over-the-counter peso derivatives. Mexico is also

the only Latin American country that operates a

deliverable forward market open to non-resident

investors. Liquidity in the forward market is

generally good and will continue to increase as

the market grows.

The most common Mexican swaps are plain

vanilla interest rate swaps that exchange a fixed

rate for a 28-day floating rate, normally based on

the Interbank Interest Rate Average (tasa de

interés interbancaria de equilibrio, or “TIIE”). The

TIIE is calculated daily by Banco de Mexico

using quotes submitted by at least six credit

institutions. Volume has increased, providing

liquidity up to 20 years. Currency swaps are also

available up to 20 years.

Options

Peso options trade on a deliverable basis, with

expiration at 12.30 pm EST. Similar to spot and

forward markets, the option market is also quite

liquid, with a normal transaction size of USD 30-

50m. The most liquid maturities are 24 months or

less.

Mexican peso (MXN)

The Mexican central bank (Banxico) has kept the currency in a

free floating exchange regime since December 1994

MXN is the most actively traded emerging market currency,

according to the 2007 BIS survey

In 1997 a mechanism was introduced where Banxico would

auction USD200m if the peso weakened more than 2% in a day,

but this has not been used since 2001

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Average daily volume USD15bn Spot transaction USD5m Bid/ask spread 20-30 pips (0.0020-0.0030 MXN) Forward transaction 3M USD50m Forward spread 1M 10 pips (0.0010 MXN)

12M 50 pips (0.0050 MXN) Implied option volatility spread All dates: 0.3%

Note: Spreads are subject to change with market developments Source: HSBC FX framework Exchange rate mechanism

The Mexican Central Bank (Banco de

México, or Banxico) was granted formal

independence in 1994 and since 2001

monetary policy has been conducted under an

inflation targeting regime.

Banco de México has implemented a

mechanism to reduce the rate of accumulation

of FX reserves through daily dollar-sale

auctions.

Every 3 months, Banco de México announces

the amount of foreign exchange to be

auctioned, which is allocated during the

following four quarters. If the daily amount to

be sold during a quarter is lower than

USD2m, the mechanism changes so that the

Bank sells USD2m a day until it depletes the

amount for the quarter.

The mechanism works under specific rules

and is independent of both exchange rate

dynamics and prevailing market conditions.

The peso is sufficiently liquid that the daily

dollar sales do not have a significant impact

on the market.


Currency regulations are relatively liberal with the

Banco de México having the key responsibility

for regulating FX operations.

Onshore –Onshore

Spot

Local regulation allows only entities

registered in Mexico to trade MXN onshore.

Local entities cannot charge fees for currency

transactions as profit is earned through

foreign exchange intermediation.

Foreign residents are allowed to open MXN

accounts in local banks to make transactions.

Forward, FX swaps and options

Regulation to operate derivatives is more

extensive.

All entities require the central bank’s

authorization to transact derivatives products.

Local entities must satisfy the 31

requirements established at Circular 4/2006

with regards to derivatives operations.

Offshore – onshore

Spot

Foreign institutions are allowed to participate

in spot trading of the MXN.


The Mexican Law of Ancillary Credit

Activities states that only authorized Mexican

foreign exchange houses and Mexican banks




Source: HSBC Notes: Times are Mexico City local time = GMT –6 hours

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are allowed to conduct FX operations such as

the purchase, sale and exchange of foreign

currency, including the transfer or delivery of

funds. As such, this limits the ability of a

foreign bank to offer, or enter into MXN

related derivatives with Mexican

counterparties within Mexico that involves a

foreign exchange transaction.

The only exception to this is when the

counterparty is a Mexican bank since the

foreign bank would be considered a client of

the Mexican bank.

Foreign entities are allowed to offer onshore

financing to Mexican residents, including

MXN loans, foreign currency denominated

loans, and derivatives. However, funding has

to come from offshore as Mexican law

prohibits foreign banks from taking deposits

in Mexico.

Forwards, FX swaps, and options are

regulated by ISDA (International Swaps and

Derivatives Association).

Foreign investors are required to sign a

general contract in accordance with ISDA

regulations when transacting derivatives.

Furthermore, depending on the type of

derivative (forward, swaps or options), a

specific contract will need to be closed in

addition to the general one.

Onshore – Offshore

Spot

Local entities are allowed to buy and sell

foreign currency offshore.


Local entities can hedge risks with foreign

institutions offshore through forwards, swaps

or options.

Local entities are allowed to fund offshore

through debt issuance or borrowing from

abroad.

Offshore – offshore

There are no restrictions for foreign entities to

operate Mexican peso instruments offshore.

The market is open to spot, forward, swaps

and options operations.

Repatriation

Exchange rate policy is determined by the

Exchange Rate Commission, which consists of

three representatives from the central bank and

three from the Secretariat of Finance.

Mexico allows for the free flow of capital

across its borders.

Export proceeds may be held in pesos or

foreign currency for an indefinite amount of

time.

There are no restrictions on international

borrowing for non-resident companies.


borrowing locally.


capital, although financial institutions are

required to submit reports pursuant to

Mexico’s anti-money laundering laws.

Taxation52 Foreign investments in Mexico are regulated

by the Foreign Investment Law (Ley de

Inversión Extranjera).

Foreign firms seeking to open a local office

must obtain authorisation from the Secretariat

of the Economy. In general, Mexico is fairly

open to foreign investments, except in


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industries deemed to be of strategic

importance to the government.

Special approval is required from the National

Commission on Foreign Investment

(Comisión Nacional de Inversiones

Extranjeras) for foreigners looking to acquire

more than 49% of an existing Mexican entity.

The corporate income tax rate is 28%,

although certain companies qualify for tax

breaks, depending on their size and industry.

In order to remit profits from Mexico, a

company must be registered with the National

Registry of Commerce, and meet reserve

requirements and tax obligations.

Firms are legally obliged to dispense 10% of

pre-tax profits to employees and 5% of net

profits must go to reserves until reserve

requirements are met.

The fiscal reform measures approved in

September 2007 proposes some tax changes

starting on January 2008.

A new tax called Corporate Flat Tax (IETU)

will levy a tax rate of 16.5% in 2008, 17% in

2009 and 17.5% starting in 2010.

The tax base of IETU is broader than the

current income tax. However, a few

deductions are allowed, such as donations.

Income tax payments will be fully

accredited against the tax base of IETU.

The Mexican government is working to

incorporate IETU in the double-taxation

agreements with different countries.

Government debt, including central bank and

IPAB (Institute for the Protection of Bank

Savings) securities are not subject to tax

withholding although corporate bonds are.

FX derivatives are not subject to tax

withholding, but fixed income derivatives are.

In the case of equities, tax withholding rules

are dependent on the particular stock name.

Dividends payments are not subject to tax

withholding.


Date Event

2008 1 Jan New Year’s Day 5 Feb Constitution Day 20 Mar Holy Thursday 21 Mar Good Friday 1 May Labour Day 16 Sep Independence Day 2 Nov Day of the Dead 20 Nov Mexican Revolution 12 Dec Our Lady of Guadalupe 25 Dec Christmas Day

Source: Comision Nacional Bancaria y de Valores

Information sources

Banco de Mexico www.banxico.org.mx Ministry of Finance www.shcp.gob.mx National Statistics, Geography and Informatics Institute

www.inegi.gob.mx

Banking and Securities Commission www.cnbv.gob.mx Reuters Fixing page HSMX01, HSMX02 Bloomberg Fixing page HSMX1, HSMX2

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Introduction

Banco HSBC Nicaragua S.A. (HBNI) was renamed

from Banistmo Nicaragua S.A when the HSBC

Group acquired Grupo Banistmo in November

2006.

Spot

The Central Bank of Nicaragua (BCN) establishes

the selling and purchasing price for the USD on

the following basis: purchases are made at the

official exchange rate for that day value of the

transaction (BCN publishes official exchange

rates for the month on the first day) and sells USD

1% above the official exchange rate for the day.

A fluid market exists between commercial banks,

financial institutions and clients. Commercial

banks set their positions on a daily basis

depending on the bank’s requirements for the day.

The price of USD purchases and sales are set

depending on market conditions (always with

BCN’s official exchange rate as a reference).

Banks can also transact FX at a branch level for

their retail and corporate banking customers.

Forwards/FX swaps

There are no FX forward, FX swaps or FX

options markets.


Onshore average daily volume USD10m Onshore spot transaction Minimal size Onshore bid/ask spread 1%



Purchases and sales of USD are not controlled

by the BCN. Most operations are done

between commercial banks, financial

institutions and customers.

The official exchange rate for the NIO is set

by the BCN.

USD purchased at BCN’s bid price are

disclosed on a daily basis to the financial

system.

The local currency is delivered the day after

the transaction is closed (T+1).

Nicaraguan cordoba (NIO)

The Central Bank of Nicaragua (BCN) maintains a managed float

exchange rate policy

BCN weakens the NIO by approximately 5% per annum vs the USD

BCN buys and sells USD only with the government, commercial

banks and some other regulated financial institutions with no limits

on size

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The official exchange rate is weakened by 5%

annually against the USD.


Local corporations and individuals are allowed

to maintain foreign currency denominated

accounts in the local banking system (mostly in

USD and occasionally in EUR).

Exporters and companies within the free zone

regime are allowed to dispose of the USD

generated by their exports and are not

required to repatriate or liquidate them.

Companies and individuals are allowed to

keep USD accounts abroad; however, foreign

financial institutions are not allowed to come

into the country to take deposits from

Nicaraguan customers.

Dividends & profits

Dividends and profits can be remitted

periodically in USD.

Capital

As long as minimum capital requirements are

complied with, there are no restrictions on

capital repatriations. These require the prior

approval from the regulating entity.

Regulations

All transactions related to the purchase or sale

of USDs in Nicaragua are regulated by BCN.

Customer operations in cash up to

USD10,000 or more have to be reported on a

daily basis to the BCN. Banks are not

regulated on the amount they buy or sell.

Offshore-onshore

No outside entities are allowed to purchase

USD through the local market.

Foreign citizens are allowed to sell/purchase

USD at their local commercial banks.

Taxation53 The base tax on corporate profits is 30%.

A 10.50% withholding tax is applicable to

services provided by foreign companies or

individuals.

Interest payments to foreign financial

institutions are not subject to withholding tax.


Date Event

2008 1 Jan 27-28 Mar 1 May 19 Jul 1 & 10 Aug 14 Sep 15 Sep 8 Dec 25 Dec

New Years Eve Holy Week Labor Day Anniversary of Revolution Santo Domingo Festivities San Jacinto Battle Independence Day Immaculate Conception of Holy Mary Christmas Day

Source: Nicaraguan Banking Association (subject to prior authorization from ASOBANP and SIBOIF)

Websites

Central bank website www.bcn.gob.ni Nicaraguan Banking Association www.asobanp.org.ni Regulatory Entity www.superintendencia.gob.ni





Notes: Times are Nicaragua local time = GMT - 6 hours Source: HSBC

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HSBC is involved in Peruvian markets from its

local trading floor in Lima and coordinates with

its New York trading floor to offer the following

products:

Spot FX

Non-deliverable forwards (NDF) out to 12

months54

Global fixed income

Cross-currency swaps (CCS) up to 3 years

Spot

The local FX market is open between 9.30am and

1.30pm, but there is quoting from 8.30am. Spot

volume has increased recently to USD250-300m

per day, although the market is not particularly

deep due to a lack of participants and the large

scale use of US dollars in the Peruvian economy.

54 Cannot trade with onshore counterparties, including offshore subsidiaries

Forwards

In Peru, the onshore market consists of

deliverable and non deliverable forwards (NDFs).

While the offshore market is made up of mainly

NDFs, deliverable forwards are negotiable. The

most liquid maturities are those with tenors of up

to 1 year, especially the shorter maturities.

Forwards between 1 and 3 years are negotiable

depending on the liquidity of the market, which is

usually low. Total forward volume is

approximately USD150-200m per day.

Options


Peruvian sol through the HSBC office in New

York.

Peruvian nuevo soles (PEN)

Peru has a free floating FX rate, although the Banco Central de

Reserva del Peru (BCRP) intervenes to smooth out excess

volatility

One of the main characteristics of the local financial system is the

duality of currencies, where the PEN and the USD co-exist and

both are accepted currencies

Both deliverable and non deliverable forwards (NDFs) are

available in the onshore and offshore markets

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Onshore average daily volume USD250-300m Onshore spot transaction USD1.0m Onshore bid/ask spread 10 pips (0.0010 PEN) Onshore forward transaction USD 2-3m Onshore forward spread 1M 25 pips (0.0025 PEN) Offshore average daily volume USD 20-50m NDF transaction USD 3-5m NDF spreads 1M 20 pips (0.0020 PEN Implied option volatility spread 2.0 – 3.0% vol


FX framework The BCRP intervenes in the FX market to prevent

any excess volatility in the PEN FX rate by

buying/selling USD or CDRs linked to the FX

rate. The main rationale for this activity is to

reduce FX volatility. Because of the high degree

of financial dollarization in the economy, any FX

volatility can negatively impact economic activity

through “balance sheet” effects. BCRP does not

specifically target any particular USD-PEN level,

as this may be inconsistent with its inflation

targeting, and may encourage the use of foreign

currency assets or liabilities.

Besides local banks, pension funds are the most

active players and provide the most liquidity in

the market. Off-shore counterparties are also

important players in the NDF market.

Fixing mechanism

The fixing rate (the mid point between bid and

offer) is published on Reuters page PDSC at 11am

local time, although for off-shore counterparties the

fixing rate published by the local regulator on its

web-page at the end of the day is used. Contracts

are settled two working days after the fixing.

Repatriation & other regulations There is full convertibility and no restrictions for

trading FX.

Taxation55 There is a 0.08% tax on every financial transaction

involving movements between accounts of

different ownership in the onshore market.

Regarding the offshore market, there are no taxes

charged unless local account transfers are involved.


Date Event

2008 1 Jan New Year’s Day 6 Apr Good Friday 1 May Labour Day 29 Jun Sts. Peter and Paul 28 Jul Independence Day 30 Aug St. Rose of LIma 8 Oct Combat of Angamos 1 Nov All Saints’ Day 8 Dec Immaculate Conception 25 Dec Christmas Day

Source: HSBC

Information sources

Banco Central de Reserva del Peru www.bcrp.gob.pe Ministry of Economy and Finance www.mef.gob.pe Reuters Fixing Page PDSC Bloomberg Fixing Page Curncy peru Superintendencia de Banca y Seguros www.sbs.gob.pe





Notes: Times are based on Lima local time = GMT + 5 hours Source: HSBC

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HSBC Bank (Uruguay) S.A. is a fully licensed

bank operating in all Treasury markets. We offer

the following products on and offshore:

Spot FX

Deliverable and non-deliverable forwards on

a case by case basis

A range of fixed income bonds (domestic and

global), issued in pesos, dollars or euros.

Spot

The minimum bid-ask spread in the interbank

market for USD-UYU is UYU0.05 and the

standard minimum transaction size is USD100,000.

The interbank market is open from 10am to 5pm.

Most interbank deals are done via the Electronic

Market, but the OTC market still exists with

limited liquidity.

Forwards/FX swaps

Offshore, the UYU generally trades on a non-

deliverable basis (NDF), although deliverable

forwards can also be traded on a case by case

basis. Locally, NDF and forwards are normally

traded on a case-by-case basis.

Onshore quotes for forwards or NDFs are tailor-

made, due to the lack of derivatives in the market.


Onshore average daily volume USD10m Onshore spot transaction USD100k Onshore bid/ask spread 5 pips (0.05 UYU) Onshore forward transaction USD1m Onshore forward spread 5 pips (0.05 UYU) NDF transaction USD100k NDF spreads 15 pips (0.15 UYU)


FX framework UYU was freely floated on 18 June 2002.

There are no restrictions for quoting

USD/UYU.

Normally spot UYU settles T+0 onshore and

T+2 offshore (at the time of going to press,

BCU is currently reviewing regulations for

interbank trading).

BCU offers limited amounts of 1, 3 and 6

months deliverable forwards.

Uruguayan peso (UYU)

Banco Central del Uruguay (BCU), allows the UYU to trade freely.

However, BCU maintains the right to intervene when necessary

Offshore, UYU forwards generally trade on a non-deliverable

basis although deliverable forwards can also be traded on a case-

by-case basis

BCU manages monetary policy by adding or restricting liquidity via

the FX and repo markets, or through Treasury bill issuances

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There are no restrictions to buy or sell foreign

exchange by residents or non residents.

There are no bid-ask spread limits for quotes

to clients.

The UYU rate is set daily by BCU at the close

of business.

No FX options are available for UYU.

There are no currency controls.

There are no legal restrictions on capital

flows.


capital and earnings.

There is strict bank secrecy regulation. Banks

are not allowed to give information about

their depositors, except by court order.

Visitors and residents are required to

complete a customs form on entry to the

country detailing incoming cash over

USD10,000 in value.

There are no limits for wire transfers in

foreign currency.

Taxation56 There are no specific taxes on FX transfers or

FX sales or purchases (spot or forward).

There is a 1.5% net worth (or capital) tax for

companies, and taxes that range from 0.7% to

2.75% for individuals. Deductions are also

allowed, and calculated on a fiscal basis.

Domestic loans are subject to taxes at 0.10%

annually calculated on a monthly basis.

There is a differential VAT rate of 10% or

22% depending on the type of good or service.

The corporate tax rate is 25% (based on fiscal

GAP). Some activities are non-taxed income,

and there are some deductions allowed.

A 25% withholding tax is imposed on

offshore corporates.

Personal income taxes, in place since 1 July

2007, apply to residents and non residents,

exclusively on locally generated income.

Interest on time deposits is subject to the

following:

A 3% tax for deposits denominated in pesos

with maturities of more than one year

A 5% tax for deposits denominated in

pesos with maturity less than one year

A general 12% for other deposits,

including foreign currency

Government bonds are exempt from taxes.



12am 2am 4am 6am 8am 10 am 12pm 2pm 4pm 6pm 8pm 10pm 12am


Source: HSBC Notes: Times are based on Motevideo local time = GMT –3 hours

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Date Event

2008 1 Jan New Year/s Day 4-5 Feb Carnival 20 Mar

20 Mar Maundy Thursday Good Friday

19 Apr 1 May

Landing of 33 Orientales Labour Day

18 May 20 Jun

Battle of Las Piedras (Observed) Artigas Birthday

18 Jul 25 Aug

Constitution Day Independence Day

12 Oct 2 Nov

Columbus Day All Souls Day

25 Dec Christmas Day

Source: HSBC

Information sources

Banco Central del Uruguay www.bcu.gub.uy Ministry of Economics and Finance www.ain.gub.uy HSBC in Uruguay – Chief Dealer [email protected]

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HSBC is involved in structuring Bolivar ‘VEB’

products and creating financial solutions from its

New York office.

VEB link notes

Corporate A Local investment

bank

HSBC US security

USD

VEB

VEB

USD

USD or Treasury

VEB linked note

VEB DPN/USD Treasury

Corporate A Local investment

bank

HSBC US security

USD

VEB

VEB

USD

USD or Treasury

VEB linked note

VEB DPN/USD Treasury

Source: HSBC

A corporate can transfer a certain amount of VEB

to a local investment bank. This bank executes,

from its own account, a National Public Debt

(DPN) Treasury ‘permuta’ with the VEB received

from the client (the ‘Swap Transaction’). The

client chooses the underlying and then the note is

priced. The price of the note is a function of the

price of the underlying asset and of the FX rate

from the implied parallel market. The onshore

corporate receives the VEB Note Credit Linked to

the selected security. HSBC Bank USA, N.A.

issues the note and transfers it, via Euroclear, to

the client’s custody account. If the client does not

have a custody account, HSBC Bank USA, N.A.

will facilitate the opening of one for the client

(subject to normal KYC procedures).

It is important to highlight that Article 6 of the

Law provides that any transactions with

‘securities’ (‘títulos valores’) are exempt from the

application of the law. HSBC understands that the

transactions of the so called ‘parallel market’ do

not constitute a purchase or sale of foreign

currency. They are transactions with securities,

such as the swap transaction, by which a party

with a VEB position (in our case the Bank)

purchases a security denominated in VEB (the

DPNs), exchanges, swaps or in any other way

converts such a security for a security

denominated in foreign currency (T-Bills) and,

then, resells the security denominated in foreign

currency to a purchaser of such a security for a

price in foreign currency payable outside of

Venezuela. The same transaction would also work

the other way around (ie from foreign currency to

local currency). For instance, by depositing shares

Venezuelan bolivar (VEB)

The central bank of Venezuela implemented currency controls

restricting bolivar transactions on 5 February 2003

The central bank created the Currency Administration

Commission, Comisión de Administración de Divisas (Cadivi), to

regulate the supply of dollars to private sector firms

Only a few spot or forward transactions are allowed to take place

and must be done with the approval of Cadivi

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of a Venezuelan corporation with a depositary

bank in exchange for ADRs. Subject to the

analysis of each case, in almost all scenarios the

VEB/USD Note does not violate the Exchange

Control Regulations. Noteholders should consult

their own legal counsel for verification.

Spot

The ‘parallel market’ or the ‘permuta’ of VEB

DPN’s and US treasury bills is a market traded

locally on a daily basis. The market value is

considered the implied FX rate that is derived

from the VEB DPN vs. US T-Bill ratio. The

prevailing implied rates are between 6000 and

7000 VEB per USD1. There is not necessarily a

relationship between the official rate and the

parallel market rate. The latter reflects a separate

market for the exchange of securities from which

there is an implied FX rate. The parallel market

can be extremely volatile, with wide bid / offer

spreads and very poor liquidity at times. The

chart below illustrates movements in the parallel

market in recent years.

USD-VEB parallel rate

2,500

3,500

4,500

5,500

6,500

7,500

Jan-

07

Feb-

07

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Jul-0

7

Aug-

07

Sep-

07

Oct

-07

Parallel market VEB rate

Source: HSBC

Forwards /FX swaps/Options

There is no market for FX forwards, swaps, or

options. There is no offshore NDF market.

VEB link notes background The note allows the holder to have a long position

in the USD without immediately reflecting the

loss derived from the difference in the FX rate

from the implied parallel market or official

market. The note can also be viewed as a funded

VEB/USD forward against the parallel market.

Since accounting procedures allow the note to be

booked as an investment in VEB, the note allows

clients to increase their position in foreign

currency without changing their balance sheet.

Noteholders are advised to seek independent

accounting advice.

The note is marketed by HSBC Bank USA,

N.A in conjunction with an established

investment bank in Venezuela.

This structured note is denominated in VEB.

It pays and accrues interest in VEB.

The face value of the note is equal to the

amount paid by the client and is independent

of the market value of the underlying, unless

the noteholder wants to unwind the note prior

to its scheduled maturity.

Both HSBC Bank USA, N.A and the note

holder have an option at maturity to request

payment through either cash settlement at fair

market value in USD or through the delivery

of the underlying.

The maturity of the note is structured

according to the client’s request and it may

vary from 45 days to 5 years, with or without

an automatic rollover option.

The client may choose any asset as the

underlying for the note. Underlying assets

may vary, from an HSBC term deposit to

riskier assets like bonds of the Republic of

Venezuela.

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The coupon of the note is paid in VEB, is

linked to the coupon of the underlying asset

and is paid with the same frequency.

The note is registered and cleared through

Euroclear.

The Insurance Law requires insurance

corporations to maintain certain guaranties and

legal reserves while carrying out their activities.

Such guaranties and reserves could affect the

insurance corporation’s ability to invest in the

credit linked note (CLN). In particular, the funds

that comprise the reserve cannot be used to invest

in the CLN. Consequently, an insurance

corporation domiciled in Venezuela may invest in

the CLN only with funds other than those

corresponding to the guaranties and reserves

required to be maintained by the insurance

corporations under the Insurance Law.

A financial institution domiciled in Venezuela

may invest in the CLN provided that the seller of

the CLN is not a shareholder or otherwise related

to the financial institution. Such investors should

verify with their internal regulatory counsel.

Finally, the financial institution’s investment in

the CLN may be considered as included in the

foreign currency position limits imposed by the

superintendent to financial institutions operating

in Venezuela.

A corporation in Venezuela may legally invest in

the CLN. Such investors should verify with their

internal and external counsel.


Date Event

2008 1 Jan New Year's Day 4-5 Feb Carnival 20 Mar Holy Thursday 21 Mar Good Friday 1 May Labour Day 24 Jun Battle of Carabobo 5 Jul Independence Day 24 Jul Bolivar's Birthday 12 Oct Columbus Day 25 Dec Christmas Day


Information sources

Banco Central de Venezuela www.bcv.org.ve Ministry of Finance www.mf.gov.ve

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Global Foreign Exchange Contacts

Hong Kong

Jason Keg Head of Regional Currency Trading, Asia Pacific +852 2822 2133 [email protected]

Richard Yetsenga Asian Currency Strategist +852 2996 6565 [email protected]

Perry Kojodjojo Currency Strategist +852 2996 6568 [email protected]

Daniel Hui Currency Strategist +852 2822 4340 [email protected]

London

Andrew Brown Global Head of Foreign Exchange +44 20 7991 5666 [email protected]

David Bloom Global Head of Currency Strategy +44 20 7991 5969 [email protected]

Juliet Sampson Chief EMEA Economist +44 20 7991 5651 [email protected]

Simon Williams Chief Economist, Gulf Markets +917 4507 7614 [email protected]

New York

Daniel Silber Head of Foreign Exchange, Americas +1 212 525 3365 [email protected]

Clyde Wardle Emerging Markets Currency Strategist +1 212 525 3345 [email protected]

Paulo Hermanny Latin American Currency Strategist +1 212 525 3084 [email protected]

Regional Treasury Contacts

Country/Territory Contact Telephone

Asia Brunei Salyahrinah S Yahya + 673 2 233668 China David Y C Liao + 86 21 38882271 India Anand Krishnamurthy +91 22 22681280 Indonesia Apratim Chakravarty + 62 21 5246620 Malaysia Piyush Kaul + 60 3 22703189 Mauritius Patrick AH Vee + 00 230 2020955 Pakistan Mumtaz Yousuf + 92 21 2638253 Philippines Wick Veloso + 63 2 8305308 Singapore ohn A Mcgowan + 65 65305478 South Korea Dong Jin D J Lee +82 2 20040735 Sri Lanka Sachith N Perera + 94 11 2421697 Taiwan Adam C C Chen + 886 2 27571193 Thailand Panya Chanyarungrojn + 66 2 6144880 Vietnam Hai Hong Pham + 84 8 823 4447

Europe, Middle East and Africa

Bahrain Dilip Wijeyeratne + 973 175 698 269 Czech Republic Filip Koutny + 420 221 033 510 Egypt Hussein El Maraghi + 20 2 735 6370 Israel Harel Cordova + 972 3 7101124 Jordan Walid Jadoun + 962 65 51 80 81 Kazakhstan Abay Bektemissov + 7 327 2596970 Kuwait Mohammad Dimachkie + 974 438 22 22 Lebanon Carla Ajaka + 961 1371 665 Oman Dominic Ferro + 968 24799912 Poland Jan Wozniak + 48 22 3540601 Qatar Ayman Kolthoum + 974 974 4383326 Russia Nickolay Koudryashov + 7 495 7211577 Saudi Arabia Suma Kurian + 971 4 3534335 Slovakia Karel Bures +421 2 58 26 42 01 South Africa Peter Nash + 27 11 6764211 Turkey Ali Karaali UAE Neil Foster +971 450 77296

Latin America

Argentina Gabriel Martino + 5411 4344 8111 Brazil Andre Brandao + 5511 3371 8210 Chile Ignacio Barrera + 562 299 7253 Colombia Maria Fernanda Calderon + 571 334 5088 Honduras Jose Fernando Mendoza 5042404829 Mexico Fernando Perez + 5255 5721 3401 Nicaragua Juan Carlos Acuna + 505 270 1200 Peru Rafael Sevilla + 511 512 3033 Uruguay Enrique Goyetche + 5982 915 3395 Venezuela Carlos Solorzano + 58 212 285 0222

Source: HSBC

Contacts List

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Disclosure appendix Analyst certification The following analyst(s), who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Richard Yetsenga, Clyde Wardle, Perry Kojodjojo and Daniel Hui

This report is designed for, and should only be utilised by, institutional investors. Furthermore, HSBC believes an investor's decision to make an investment should depend on individual circumstances such as the investor's existing holdings and other considerations.

Analysts are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company, please see the most recently published report on that company available at www.hsbcnet.com/research.

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures 1 This report is dated as at 21 December 2007. 2 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer * Legal entities as at 22 August 2007 'UAE' HSBC Bank Middle East Limited, Dubai; 'HK' The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; 'TW' HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; 'DE' HSBC Trinkaus & Burkhardt AG, Dusseldorf; 000 HSBC Bank (RR), Moscow; 'IN' HSBC Securities and Capital Markets (India) Private Limited, Mumbai; 'JP' HSBC Securities (Japan) Limited, Tokyo; 'EG' HSBC Securities Egypt S.A.E., Cairo; 'CN' HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; 'GR' HSBC Pantelakis Securities S.A., Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv, 'US' HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler A.S., Istanbul; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, HSBC Bank Brasil S.A. - Banco Múltiplo.

Issuer of report The Hongkong and Shanghai Banking Corporation Limited Level 19, 1 Queen's Road Central Hong Kong SAR Telephone: +852 2843 9111 Telex: 75100 CAPEL HX Fax: +852 2801 4138 Website: www.hsbcnet.com/research

The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) has issued this research material. The Hongkong and Shanghai Banking Corporation Limited is regulated by the Hong Kong Monetary Authority. This material is distributed in the United Kingdom by HSBC Bank plc, and in Australia by HSBC Bank plc – Sydney Branch (ABN 98 067 329 015) and HSBC Bank Australia Limited (ABN 48 006 434 162) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). It makes no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local laws. This material is distributed in Japan by HSBC Securities (Japan) Limited. This material may be distributed in the United States solely to "major US institutional investors" (as defined in Rule 15a-6 of the US Securities Exchange Act of 1934); such recipients should note that any transactions effected on their behalf will be undertaken through HSBC Securities (USA) Inc. in the United States. Note, however, that HSBC Securities (USA) Inc. is not distributing this report, has not contributed to or participated in its preparation, and does not take responsibility for its contents. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. In the UK this material may only be distributed to institutional and professional customers and is not intended for private customers. It is not to be distributed or passed on, directly or indirectly, to any other person. HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC is authorized and regulated by Secretaría de Hacienda y Crédito Público and Comisión Nacional Bancaria y de Valores (CNBV). HSBC Bank (Panama) S.A. is regulated by Superintendencia de Bancos de Panama. Banco HSBC Honduras S.A. is regulated by Comisión Nacional de Bancos y Seguros (CNBS). Banco HSBC Salvadoreño, S.A. is regulated by Superintendencia del Sistema Financiero (SSF). HSBC Colombia S.A. is regulated by Superintendencia Financiera de Colombia. Banco HSBC Costa Rica S.A. is supervised by Superintendencia General de Entidades Financieras (SUGEF). Banistmo Nicaragua, S.A. is authorized and regulated by Superintendencia de Bancos y de Otras Instituciones Financieras (SIBOIF). Any recommendations contained in it are intended for the professional investors to whom it is distributed. This material is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of HSBC only and are subject to change without notice. The decision and responsibility on whether or not to invest must be taken by the reader. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of any companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform banking or underwriting services for or relating to those companies. This material may not be further distributed in whole or in part for any purpose. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. (070905) © Copyright. The Hongkong and Shanghai Banking Corporation Limited 2007, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited. MICA (P) 316/06/2007

Perry Kojodjojo*

FX Strategist, Asia

+852 2996 6568

[email protected]

Perry joined HSBC in 2005 as part of the global EM FX strategy team. He is based in Hong Kong.

HSBC’s Guide to EmergingMarket Currencies 2008The new encycle on what can and cannot be done

Macro

Currencies

December 2007

This compendium of regulations is an essential companion for investing, hedging or

simply transacting in emerging market currencies.

Although markets are gradually de-regulating, many restrictions and requirements remain.

With our global footprint, HSBC provides a full service across the emerging market’s universe

in both deliverable and non-deliverable currencies.

Decem

ber 2

007

Cu

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cie

sH

SB

C’s

Gu

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Em

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ing

Mark

et C

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s 2

008

Richard Yetsenga*

Asian Regional FX Strategist

+852 2996 6565

[email protected]

Richard is a Hong Kong-based member of HSBC’s global emerging markets FX research team covering Asia. Prior to joining HSBC in 2004,

he worked in currencies and economics research, including four years with the Australian government.

Daniel Hui*

FX Strategist, Asia

+852 2822 4340

[email protected]

Daniel is a Hong Kong-based FX strategist covering Asia. Prior to joining HSBC in 2007, he worked as an economist covering South-East Asia and

Greater China. Daniel received his masters from Johns Hopkins University concentrating on international economics and Asian economic

development.

Clyde Wardle

Emerging Markets Currency Strategist

+1 212 525 3345

[email protected]

Clyde is a New York-based emerging markets currency strategist, focusing mainly on Latin America. He also provides emerging market risk

management advice to HSBC’s global client base. He has been with the Bank for 13 years.

Dominic Bunning*

Junior FX Strategist

+44 20 7991 5970

[email protected]

Dominic is a junior FX strategist based in London on a one-year placement from Bath University.

* Employed by non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to NYSE and/or NASD regulations.

Disclosures and Disclaimer This report must be read with the disclosures and analyst

certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

hsbc s guide to emerging market currencies 2008

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