Foreign Exchange Market of Bangladesh

7676 Words Aug 20th, 2008 31 Pages
1. Introduction

1.1 Objective

Objective of this report is to give an overview of the Foreign Exchange Market. Towards that, an attempt has been made to describe the nature of the market, identify the traders and factors, and give an idea about the size of the market and the volume of trading.

1.2 Methodology

This report has been primarily based on secondary research – various publications of Bangladesh Bank and other banks, notably HSBC and Standard Chartered Bank, newspaper reports, web-sites on the internet, and some informal discussions with bank officials were the main sources for the information.. 1.3 Scope and Limitations

A true assessment regarding the aspects covered in the report would have be more rigorous and is beyond
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The Bangladesh Bank had a preannounce one Taka wide band within which it would, at its discretion, undertake US Dollar purchase and sale transactions with banks. The banks were free to set their own rates for their interbank and customer transactions. Those rates generally tended to be outside the announced rate band for transactions between the Bangladesh Bank and authorized dealers.

2.3 Limits of Foreign Exchange Trading

The foreign exchange market of the country is confined to the city of Dhaka. The 32 scheduled banks operating as authorized dealers in the inter-bank foreign exchange market are not permitted to run a position beyond certain limits. In the event of speculation on an appreciation of the value, an authorized dealer may buy more foreign currencies than it needs, but at the end of the day it must maintain its limit by selling excess currencies either in the inter-bank market or to customers. Authorized dealers maintain clearing accounts with the Bangladesh Bank in dollar, pound sterling, mark and yen to settle their mutual claims. If there any excess foreign exchange holdings exist after these transactions, it is obligatory for them to sell it to the Bangladesh Bank. In case of shortfall of the limit, authorized dealers have to cover it either through purchase from the market or from the Bangladesh Bank.

2.4 Market Participants

2.4.1 Role of Bangladesh Bank
At present, the system of exchange rate management in