The answer is that many activities cannot do without forecasts as a basis for their planning. The spring budget bill that was presented recently is, for example, based on a macroeconomic forecast of the levels of central government income and expenditure in the years ahead and the potential scope for reforms that will therefore be available. Forecasts of different kinds also play a practical role for the planning of companies, even though they may not call their underlying assessments forecasts. Financial investors, who are better able than others to forecast macroeconomic developments, have an advantage in the search for yield as financial prices such as interest rates, exchange rates and share prices are strongly affected by business cycle developments. A final but important example concerns households who, when planning to  BIS central bankers’ speeches  1  buy a home, largely base their decision on what they believe about the development of interest rates in the future. Although forecasts are seldom entirely correct, I would still say that they are often correct enough to provide a reasonable basis for planning. It is mainly in connection with turning points in economic activity and with different types of crisis that forecasts prove to be wrong. On the other hand, we should be aware that forecasts are predictions of what will happen in the future and are therefore shrouded in uncertainty. We must always be prepared to change our course of action if events move in a different direction.
I will also discuss what concrete steps can be taken, and are being taken, to further financial integration in the region. Expanded intra-regional flows of funds do potentially expose financial institutions to new types of risks. Hence I will argue that regulators need to be vigilant as the integration process proceeds. Here in Hong Kong, we are actively working to implement the latest supervisory standards. This should ensure that our banking system will be ready to take on the new challenges associated with greater financial linkages in the region. 3. But let me start at the beginning, namely, the definition of financial integration and what benefits it is likely to bring. 4. The fundamental characteristic of financial integration is that net savers in an economy can have access to any investment vehicle regardless of the geographical location of either the saver or the issuer of the investment product. Similarly, entrepreneurs seeking funds to finance capital expenditure plans can, in a financially integrated area, have access to sources of credit irrespective of geographic location. 5. Put differently, financial integration permits the efficient transfer of funds between economic units that save in excess of their investment plans to economic units for which the opposite is true. As a result, net savers will receive the highest return on their funds, and the investors will obtain credit on the lowest available terms.