Foreign Exchange Operation in Bangladesh Krishi Bank.ppt
1. MD. AL MAMUN | AGM | Treasury Management Department | BKB
FOREIGN EXCHANGE MARKET
Elements, Characteristics & Functions
2. o International Trade
o Correspondent relationship
o SWIFT
o Foreign Exchange Market
o Geographical Extent
o Size of the Market
o Functions of the market
o Market Participants
o Transactions
o Rates & Quotations
o BKB: Daily Rate Circular
o Diploma Math
o Summary
4. Advantage of International trade
• Jobs creation and boost economic growth.
• Give domestic companies global experience.
• Companies gain a competitive advantage.
• Trade makes companies more efficient.
• Reduce prices for consumers.
• Offer variety of goods and services.
5. Disadvantage of International trade
• Traditional economies lose their local farming base.
• Developed economies subsidize.
• Undercuts the prices of the local farmers
7. Society for Worldwide Interbank
Financial Telecommunication
• Globally secure financial messaging services
• Non profitable organization
8. • The process in which
participants are able to
buy, sell, exchange and
speculate on currencies.
9. Geographical Extent of the Foreign Exchange Market
• Foreign exchange market spans the globe,
somewhere every hour of every business day.
• Market is deepest, early in the day, when the
markets of both Europe and the U.S. East coast are
open.
• Market is thinnest at the end of the day, when
traders in Tokyo and Hong Kong are just getting up
for the next day.
• In some countries, a portion of FEx trading is
conducted by open bidding. Closing prices are
published as the official price, or 'fixing' for the day.
10. Size of the Market
• Bank of International Settlements (BIS) estimated the
daily volume of trading is more than USD 1 trillion.
• The market is dominated by trading in USD, EURO,
and JPY respectively.
• The major markets are London (USD 300 billion),
New York (USD 200 billion), and Tokyo (USD 130
billion).
11. Functions of the Foreign Exchange Market
• Transfer of Purchasing Power:
International transactions normally
involve parties in countries with
different national currencies. But
the transaction can be invoiced in
only one currency.
• Provision of Credit:
Movement of goods between
countries takes time, inventory in
transit must be financed.
• Minimizing Foreign Exchange Risk:
FEx market provides "hedging"
facilities for transferring foreign
exchange risk to someone else.
13. Transactions in the Interbank Market
• Spot Transactions
• Forward Transactions
• Swap Transactions
14. Foreign Exchange Rates and Quotations
• Interbank Quotations:
European terms/Direct Quotes: Number of units of
foreign currency needed to purchase one USD.
BDT 80 / USD.
American terms/Indirect Quotes: Number of units of
USD needed to purchase one unit of foreign
currency.
USD 0.0125 / BDT.
15. Foreign Exchange Rates and Quotations
• Direct Quotations: Home currency price for a
unit of foreign currency.
Foreign currency unit fixed.
• Indirect Quotations: Foreign currency price
for a unit of home currency.
In Bangladesh, a direct quote for USD is
BDT 80 / USD
This quote would be an indirect quote in USA.
16. Bid and Ask Quotations
A bid is the exchange rate at which a dealer will buy the other currency.
An ask is the exchange rate at which a dealer will sell the other currency.
Dealers buy at the bid price and sell at the ask price, profiting from the
spread between the bid and ask prices: bid < ask.
Bid and ask quotations fact: Bid for one currency is the ask for another
currency.
19. The Law of One Price and Cross Rates
• Cross Rates:
Many currency pairs are only inactively traded, so
their exchange rate is determined through their
relationship to a widely traded third currency
(generally the USD).
20. The Law of One Price and Cross Rates
• Solve the problem:
Consider an investor in Thailand would like to purchase some
Bangladesh Taka (BDT). Both currencies are quoted against
the USD. Assuming that the exchange rates are:
THB35.3398/USD
BDT 80.0000/USD
i. How can the investor figure out the price of the Thai Baht
(THB) against the BDT?
ii. What is the value of cross rate in that case?
22. DAIBB: FEX MATH
Problem 1:
Calculate the exchange rate for buying a 120
day bill denominated in pound sterling using
the following parameters
• £ 1 = $ 1.4947 - 1.4957
• $ 1 = Tk. 78.9020-78.10
• Transit period 10 days
• Interest rate 10% p.a (Assume 360 days a year)
• Profit margin per pound sterling Tk. 0.10
23. Summary
• The fex market is the mechanism by which a
person of firm transfers purchasing power
from one country to another, obtains or
provides credit for international trade
transactions, and minimizes exposure to
foreign exchange risk.
24. Summary
• A foreign exchange rate is the price of a
foreign currency.
• A foreign exchange quotation or quote is a
statement of willingness to buy or sell at an
announced rate.
25. Summary
• Quotations can be classified either as
European and American terms or as direct and
indirect quotes.
• In the real world, quotations include a bid-ask
spread.
26. Summary
• A cross rate is an exchange rate between two
currencies, calculated from their common
relationship with a third currency.
27. Time to think and do …
Craft a personal goal
Craft a personal professional goal
Craft a goal for your team