International Finance Analysis

1. Submitted To:
Dr. Samiul Parvez Ahmed
Assistant Professor & Head of Finance Department
School of Business
Submitted By:
Name ID
Md. Ali Ridwan 1510188
Md. Mehedi Hasan 1530260
Nishat Anjum 1620140
Amitab Majumder 1510212
Abdullah Al Awan Lasker 1520897
Course Name: International Financial Management
Course Code: FIN480
Section: 01
Submission Date: November 25, 2018

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LETTER OF TRANSMITTER
November 25, 2018
Dr. Samiul Parvez Ahmed
Assistant Professor & Head of Finance Department
School of Business
Independent University, Bangladesh
Plot-16, Block- B, Aftabuddin Ahmed Road
Bashundhara R/A, Dhaka-1229, Bangladesh
Subject: Submission of group assignment of FIN480
Dear Sir,
We would like to report that as you have assigned and gave us permission to work on contemporary
issues that have an impact on Forex and Forecasting. This report is an important part of our course,
and we have tried our best to work on it carefully and sincerely so that we can create an informative
report.
From this report, we can get a remarkable experience that may prove to be useful in the future.
We thank you for all the support that made our report a success and managed in accordance with
our common hope.
Sincerely yours,
Md. Ali Ridwan
On behalf of the group members

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ACKNOWLEDGMENT
The final outcome of this project required a lot of guidance and assistance from many people.
Whatever we have done is only because of such guidance and assistance. We thank the School of
Business of Independent University, Bangladesh for giving us the opportunity to do this project
and providing us with all the support and guidance we needed to complete the project.
We are also grateful to our respective faculty Dr. Samiul Parvez Ahmed, Assistant Professor &
Head of Finance Department, School of Business. We express deep and sincere gratitude to him
whose guidance, encouragement, suggestion, and constructive criticism have contributed
immensely to this project.
To all family members, relatives, friends, and everyone who shared their support either morally or
physically, thank you.
Sincerely yours,
Md. Ali Ridwan
On behalf of the group members

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TABLE OF CONTENTS
Letter of Transmitter....................................................................................................................... 2
Acknowledgment ............................................................................................................................ 3
Summary of BDT............................................................................................................................ 5
History: ........................................................................................................................................ 5
Literature Review............................................................................................................................ 6
Interest Rate:................................................................................................................................ 6
A relationship between Exchange Rate of Currencies and Interest Rate:................................ 6
Inflation: ...................................................................................................................................... 7
A relationship between Exchange Rate of Currencies and Inflation: ...................................... 7
international Fisher effect:........................................................................................................... 8
A relationship between Currency and International Fisher effect: .......................................... 8
purchasing power parity: ............................................................................................................. 8
A relationship between Purchasing Power Parity and Exchange rate of Currency: ................ 9
Global and Local Events that Affect Exchange Rate...................................................................... 9
Monetary policy crisis ................................................................................................................. 9
purchasing power vs foreign exchange value............................................................................ 11
US-China Trade War................................................................................................................. 12
BB Move Fails to Cooldown dollar........................................................................................... 15
No Surprise; It Keeps Growing ................................................................................................. 18
Forecasting.................................................................................................................................... 19
Conclusion .................................................................................................................................... 23
References..................................................................................................................................... 24

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SUMMARY OF BDT
Symbol ৳
ISO 4217 Code BDT
Central Bank Bangladesh Bank
Currency Subunits Paisa = 1/100 of a Taka
Denominations Bills: 1, 2, 5, 10, 20, 50, 100, 500, 1,000 Taka
Coins: 1, 5, 10, 25, 50 poisha. 1, 2, 5 Taka
Countries Using This Currency Bangladesh
Currencies Pegged To BDT None
BDT Is Pegged To None
HISTORY:
 Until 1971, the Indian Rupee was used in Bangladesh.
 In 1972, the Taka became the official currency of Bangladesh.
 In 1973 coins were implemented for the following denominations: 50, 25, 10, and 5
poishas.
 Treasury Taka notes were issued from the year 1972 until 1989.
 In 2008, the Bangladesh government issued the first 1,000-take note.
 In 2011, a new series of notes were in introduced. All the notes carry the 2011 date and a
watermark. (Bangladeshi Taka, 2018)

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LITERATURE REVIEW
INTEREST RATE:
Every other factor being equivalent, the higher interest rate in a nation increment the estimation of
that nation's money in respect to countries offering lower financing costs. Nonetheless, such basic
straight-line estimations once in a while exist in foreign trade. Though interest rate can be a central
point affecting currency's exchange rates, the last assurance of a cash's swapping scale with
different monetary forms is the aftereffect of various interrelated components that mirror the
financial condition of a nation in regard to different countries.
A RELATIONSHIP BETWEEN EXCHANGE RATE OF CURRENCIES AND
INTEREST RATE:
In different researcher find that there is an association between Exchange Rate of Currencies and
Interest Rate. They discovered currencies dependent and interest rate independent variables. They
inferred that they were a causal connection between these two factors. In here we discuss their
literature review and their findings on currency and interest rate.
Khawaja and Uddin (2007) using panel data of 29 banks. An increase in interest spread implies
that either the depositor or the borrower or both stand to lose.
Hartman (1980) in his study examines the question of whether long term or short term interest
rates should appear in investment demand functions. Three basic models were examined. The first
involves a distribution of time lags required to complete investment projects; the second is based
on a simple adjusted-costs model: and the third incorporates uncertainty and risk aversion. Their
major conclusion is that, except for some special cases which are probably quite unrealistic, both
long-term and short-term interest rates affect investment demand.

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INFLATION:
Inflation is a quantitative proportion of the rate at which the normal cost dimension of a crate of
chosen merchandise and ventures in an economy increments over some undefined time frame.
Regularly communicated as a rate, expansion demonstrates a reduction in the buying intensity of
a country's currency.
A RELATIONSHIP BETWEEN EXCHANGE RATE OF CURRENCIES AND
INFLATION:
In different researcher find that there is an association between currencies and inflation rates. They
discovered currencies dependent and IFE independent variables. They inferred that they were a
causal connection between these two variables. In here we discuss their literature review and their
findings on currency and Inflation.
According to Dritsakis (2011), a long-run relationship exists between the demand for money,
inflation, real income, and exchange rate. He discovered that the elasticity of real income was
positive, while that of inflation and exchange rate was negative.
According to Ibrahim and Agbaje (2013), the stability of prices is vital in establishing whether the
level of inflation will be constant or unstable in an economy. They also argued that inflation is the
constant increase in prices over a period of time. The inflation rate has been increasingly unsteady
despite some stringent policies and efforts made by governments to control and fine-tune its values
to a satisfactory stationary single-digit number. They also argued that factors such as income, high
nominal wages, fluctuations in revenue, and the payment of debt can largely influence inflation in
an economy.
Albuquerque and Portugal (2005) studied the relationship between exchange rate and inflation
volatilities.

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INTERNATIONAL FISHER EFFECT:
The International Fisher Effect (IFE) is a financial hypothesis expressing that the normal
uniqueness between the conversion scales of two monetary standards is roughly equivalent to their
nations' ostensible loan costs.
A RELATIONSHIP BETWEEN CURRENCY AND INTERNATIONAL FISHER
EFFECT:
In different researcher find that there is an association between currencies and IFE. They
discovered currencies dependent and IFE independent variables. They inferred that they were a
causal connection between these two variables. In here we discuss their literature review and their
findings on currency and IFE.
Thomas (1985) conducted a test of the IFE theory by examining results of purchasing future
contracts of currencies with a higher interest rate that contained discounts (relative to the spot rate)
and selling futures on currencies with a low-interest rate that contained premiums. Contrary to the
IFE theory the study found that 57 percent of the transactions created by this strategy was
profitable. The average gain was higher than the average loss. If the IFE theory holds, the high-
interest rate currencies should depreciate while the low-interest rate currencies should appreciate,
therefore yielding insignificant profits by the transactions.
A study by Madura and Nosari (1984) simulated a speculative strategy by borrowing currency
with the lowest quoted interest rate and invested in the currency with the highest interest rate. After
the loan repayment at the end of the investment period, it was found that the difference between
the return on the investment and the cost of borrowing (spread) was usually positive. This is in
contrary to the IFE theory.
PURCHASING POWER PARITY:
Purchasing power equality (PPP) is a financial hypothesis that looks at changed nations' monetary
forms through a "crate of merchandise" approach. As per this idea, two monetary forms are in
equilibrium or at standard when a crate of products (considering the swapping scale) is valued the
equivalent in the two nations.

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A RELATIONSHIP BETWEEN PURCHASING POWER PARITY AND EXCHANGE
RATE OF CURRENCY:
In different researcher find that there is an association between Purchasing Power Parity and
Exchange rate of Currency. They discovered currencies dependent and PPP independent variables.
They concluded that they were a causal relationship between these two variables. In here we
discuss their literature review and their findings on currency and PPP.
Hyrina and Serletis (2010) cited different econometric method used an early and later study to
verify the PPP concept, where early empirical methods failed to detect PPP existence compared to
current studies.
Pedroni (2001) indicate mixed evidence of PPP based on panel unit root tests. He illustrated the
existence of weak PPP and he rejected of strong PPP concept.
GLOBAL AND LOCAL EVENTS THAT AFFECT EXCHANGE RATE
MONETARY POLICY CRISIS
Banks do an essential job in the financial system and the economy. As a key segment of the money
related framework, banks designate assets from savers to borrowers in a proficient way. They give
particular monetary administrations, which decrease the expense of acquiring data about the two
reserve funds and getting openings. These money related administrations help to make the general
economy more effective. (What is the economic function of a bank? 2001)
The engaging quality of the host nation is another intention that drives remote banks/financial
specialists passage into an outside market. For example, various elements like GDP, estimate,
separate, monetary improvement, and benefit openings are distinguished as the ones that shape the
general allure of the market.
According to Korgaonkar (2012), countries whose banking system is functional are the ones which
can attract FDI inflows.

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According to Bevan et al (2004), one of the major considerations by foreign investors when it
comes to the investment destination is an efficient and effective banking sector whose payment
system is sound. (Tsaurai, 2014)
The banking system encourages internal and international exchange. An extensive piece of
exchange is done using credit. Banks give references and assurances, for the benefit of their clients,
based on which vendors can supply products using a loan. This is especially vital in international
exchange when the gatherings dwell in various nations and are all the time obscure to each other.
(Economicsdiscussion, 2018)
An article that had been published on The Daily Star news which referred the unsatisfactory
situation of Bangladesh Bank sectors. (Habib, 2018)
As we have explained how important banks are as an indicator for a country to illustrate how
strong their banking system is. Banking system also influences the economic system. Upwards of
60 percent of the banks recorded on the stock trades have seen their benefits tumble in the second
from last quarter of the year in light of higher provisioning necessity against default advances,
bring down financing costs and moderate credit development. Al-Arafah, Brac Bank, Dhaka,
Exim, First Security, IFIC, Islami, Mercantile, One, Premier, Prime, Rupali, SIBL, Southeast,
Standard, Trust and UCB saw their EPS to decrease, as indicated by the information from the
Dhaka Stock Exchange.
ICB Islamic Bank posted higher misfortunes this quarter.
"Bad performance, bad management, and bad governance led the profits to tumble," said
Salahuddin Ahmed, previous legislative leader of Bangladesh Bank. More importantly, private
banks' default loans soared 32.58 percent to Tk 38,975 crore in the first six months of 2018.
Syed Mahbubur Rahman, chairman of the board of governors of the Association of Bankers,
Bangladesh, said the main hit came from the provisioning on bad loans.
When this scheme will be taken into consideration by the foreign investors, they’re most likely to
be demotivated to invest in Bangladesh and the existing foreign investors will be discouraged to
expand their business in the future.

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This event will depreciate Bangladesh Taka (BDT). There will be a low demand for BDT. This
will lead to a drop in the BDT in the money Forex.
PURCHASING POWER VS FOREIGN EXCHANGE VALUE
An article that had been published on The Daily Sun news which shed light on two major reasons
of currency depreciation. (Habib, 2018)
We know that currency devaluation can occur in an absolute or relative sense. The relative
devaluation occurs when the foreign exchange value of the currency drops against the exchange
value of other currencies. For example, if the Indian Rupee trades for more than Bangladeshi Taka
today than it did a week ago, it might or might not mean that Bangladeshi Taka is absolutely worth
less than the week before in terms of real purchasing power.
So, it comes down to Purchasing power vs. foreign exchange value
The foreign exchange markets are particularly complex. This is partly because there are two types
of foreign exchange traders. The first type of trader is looking to make a purchase in a foreign
market, so he needs to convert one currency to another. The vast majority of these transactions are
performed by banks or other major financial institutions on behalf of their domestic customers.
The second type of trader is simply looking to trade a currency with a lower expected future value
for currencies with higher expected future values. This currency speculation plays an important

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function in international markets. So, if investors see that Bangladeshi Taka doesn’t offer expected
higher future values, they are going to stay away from investing in Bangladesh. That will result in
the depreciation if BDT.
US-CHINA TRADE WAR
Market vulnerability fixing to the continuous U.S. - China exchange war has prodded more
exchanges than any time in recent memory between the American dollar and the Chinese yuan
lately. "Nobody knows how the trade war will end. There's a lot of fear and panic in the financial
market and worries about trade," said Eugene Zhu, CEO of the Chinese-backed Asia Pacific
Exchange. (Tan, 2018)
U.S. and Asian superpower China could negatively affect Bangladesh. Professor Mustafizur
Rahman, the executive director of the Center for Policy Dialogue (CPD), stated: "One of the
negative results will be its effect on the World Trade Organization's dealing. Also, that can
influence Bangladesh as a WTO part. He included: "This sort of hike in obligations is normally
relevant for all nations under the 'most supported country' class. Accordingly, an expansion of
obligations on any item Bangladesh fares may have a negative impact."
There are fears this could transform into a trade war. The US will confront misfortunes as its
nearby shoppers should spend more to purchase items, Former Bangladesh ambassador to China
Munshi Faiz Ahmad said. (Zaman, 2018)
It is, be that as it may, vague right now how the advancement will influence Bangladesh.
Bangladesh can be benefited from the trade war because Ready-made garment (RMG) industry
plays a vital role in Bangladesh's economy. According to data from the US Department of
Commerce, is the largest exporter, China supplied USD 27.03 billion out of the total USD 80.28
billion worth of apparel items imported by the US in 2017. Bangladesh's share stood at USD 5.06
billion. "The burden of higher US tax on Chinese attire things implies a decent open door for
Bangladesh," said Mustafizur Rahman.
If President Donald Trump forces more tariffs on clothing part bringing in from China, over the
long haul, Bangladesh will be profited. Since the purchasers may swing to Bangladesh and that
will expand our RMG sending out in the USA and that would be better for our economy.

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"It is an opportune moment for Bangladesh as China also announced tariff cuts on goods imports
from the country," said Abul Kasem Khan, president of the Dhaka Chamber of Commerce and
Industry, at a seminar organized at its office in the capital.
Bangladesh is turning into a more prominent attire sourcing goal for western retailers on account
of the progressing US-China exchange war. This trade war has given a chance to contenders like
India, Bangladesh, Vietnam, Cambodia, and Pakistan to get their individual offers in the US
showcase. The way that Bangladesh offers the most competitive cost, trailed by Vietnam, should
be featured.
Many buyers are coming back to Bangladesh and the country's share in the American garment
market increased 6.46 percent in the first nine months of the year, said Ali Ahmed, the chief
executive officer of Bangladesh Foreign Trade Institute, who authored the study 'Trade war and
its implications for Bangladesh'. China used to buy cotton worth somewhat more than $1 billion
from the US. Presently, Bangladesh is the biggest cotton merchant as China quit sourcing the white
fiber to finance its residential producers and to end the past stocks. As a result of the trade war,
many factories from China may be relocated to some of the potential Asian countries and
Bangladesh should chase this lead. "If we want to attract Chinese sunset industries to Bangladesh
we need to stress infrastructure development, skill development, and technology-based industry
capacity," said Shubhashish Bose, senior secretary of the commerce ministry.
Faruque Hassan said many buyers, who have never sourced from Bangladesh, now started sourcing
due to the US-China trade war to avert higher US tariffs. "On top of that, we are diversifying
products and introducing the latest technology to improve quality and production. The safety
improvement that took place at our huge apparel industry helped grow the buyers' confidence,
which resulted in sharp growth in export," the Bangladesh Garments Manufacturers and Exporters'
Association leader Faruque said. The RMG sector posted an 11.50% expansion over the objective
of $10.16 billion set for the period. Centre for Policy Dialogue (CPD) research director Khondaker
Golam Moazzem also said the US-China Trade war helped Bangladesh reach the higher export
growth.

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The equalization of exchange impacts cash trade rates through its impact on supply and demand
for foreign exchange. The overall appeal of fares from that nation likewise develops as a cash
devalues of dollars. China will purchase fewer dollars since American goods have turned out to be
very costly for higher tariffs, and China may start buying more BDT because it's cheaper now in
terms of RMG. Positive net exports add to financial development. More export means more output
from production lines and mechanical offices and in addition a more noteworthy number of
individuals utilized to keep these processing plants running. The receipt of export continues
likewise speaks to an inflow of funds into the nation, which invigorates purchaser spending and
adds to financial development. “The trade war will give us some opportunities, but the country is
not yet ready to get the benefits,” said Humayun Rashid, former senior vice-president of the DCCI.
He also called for the facility to open letters of credit accounts in the Chinese currency. “Due to
lack of infrastructure we are falling behind in manufacturing electronic products,” said Mostafa
Abid Khan, member of the Bangladesh Trade and Tariff Commission.
China's consumer price inflation stood at 2.5 percent year-on-year in October 2018 whereas
Bangladesh’s inflation rate is 5.40 percent. Conventional currency theory holds that a currency
with a higher inflation rate will depreciate against a currency with lower inflation and a lower
interest rate.
The bottom line is, even though Bangladesh is getting the opportunity to export RMG at a large
quantity the exchange rate of BDT remains at stake because of the higher inflation rate.

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BB MOVE FAILS TO COOL DOWN DOLLAR
From the newspaper article published in The Daily Star in November, 2017, we found that
Bangladesh Bank failed to keep the exchange rate stable as The US dollar kept on appreciating
against BDT in spite of the infusion of a huge amount of dollar into the market by the Upward
pattern of the dollar rate is good news for the exporters and terrible news for the importers. (Uddin,
2017)
On Dec 05, 2016, the rate of the dollar was 79.68tk. On Feb 13,201& the rate was 1$=80.23tk. On
April 17, 2017, it increased to 82.74tk and on November 20, 2017, the t rate of the dollar was
84.24tk (highest of 2017). (Trading Economics, n.d.). Depreciation of domestic currency makes
foreign goods costlier in domestic markets and domestic goods cheaper in foreign markets. Home
currency depreciates because of higher imports, fewer exports, and weak remittance. (Is
Appreciation of Taka Good for Bangladeshi Economy? n.d.)
Generally speaking, import cost expanded about 12 percent or US$391.24 million in December
with sustenance and fuel purchases from abroad weighing intensely. The settlement of letters of
acknowledging (LC), for the most part, known as a real import, as far as esteem, rose to $3.65
billion in December 2017 from $3.26 billion in a similar time of the past timetable year, as
indicated by the central bank's most recent measurements. The general imports expanded amid the
period under survey basically because of higher import of food grains, especially rice and wheat,

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to take care of the developing demand for the fundamentals in the nearby markets. The BB
information appeared that the rice import rose to $190.28 million in December 2017 from just
$1.09 million per year prior while wheat import cost $103.52 million as against $87.71 million.
Higher import of oil-based goods pushed up by and large import installments and it rose to $263.98
million in the long stretch of December last year from $169.36 million around the same time of
2016. Experts are of the supposition that banks are experiencing dollar lack as the estimation of
import letters of credit (LC) surpasses the measure of dollar accessible in the market. The demand
for the US dollar is gradually increasing, mainly due to higher import payment pressure. (The
Financial Express, 2018). A senior financial analyst of the national bank said that weak remittance
inflow and moderate growth of export have added to the devaluation of the local currency. Export
rose just decently by 3.93 percent to $28 billion in the initial 10 months of 2017, contrasted with
a similar period a year back. Import saw a critical ascent riding on growing monetary exercises,
crushing the dollar supply in the market, (Taka falls against the dollar, 2017) Remittance
inflow in fiscal 2016-17 has been the lowest in six years. Migrant workers sent home $12.77 billion
last fiscal year, down 14.47 percent year-on-year. (Remittance slide continues, 2017)
As per the Bangladesh Bank, in the Fiscal Year 2017-2018, the nation got $1.15 billion
remittances in July, $1.41 billion in August, $856 million in September, $1.15 billion in
October and $1.21 billion in November. In the Fiscal Year 2014-2015, Bangladesh
accomplished a record measure of remittance achieving $15.31 billion. In the Fiscal Year
2015-2016, the settlement inflow diminished by 2.5% at $14.93 billion, and in the past
monetary year, the inflow saw a 14% plunge at $12.77 billion, which was the most reduced
in the previous six years. (Mowla, 2017).
Terms of trade: In the event that the cost of a nation's `export by a more noteworthy rate than that
of its imports, its terms of exchange have positively made strides. Expanding terms of trade
exhibited more prominent interest in the nation's export. This brings about rising incomes from
exports, which causes an increase in demand for home currency (and an expansion in the cash's
esteem). On the off chance that the cost of exports ascends by a littler rate than that of its imports,
the value of the currency will diminish in connection to its exchanging partners. (Twin, 2018)

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Current Account Deficits:
The current record is the parity of exchange between a nation and its exchanging accomplices,
mirroring all installments between nations for products, administrations, intrigue, and profits. A
shortfall in the current account demonstrates the nation is spending more on foreign exchange than
it is gaining, and that it is getting capital from foreign sources to make up the deficiency. As it
were, the nation requires more foreign currency than it gets through offers of exports, and it
supplies its very own greater amount of money. The overabundance demand for foreign currency
brings down the nation's rate of exchange until the point that domestic goods and services are
cheap enough for foreign country, and foreign resources are excessively costly, making it
impossible to produce deals for local interest. When the Taka depreciates, demand for taka
decreases, but the demand of the dollar increases and Dollar appreciates. (Twin, 2018).But abrupt
and sizeable currency depreciation may scare foreign investors who fear the currency may fall
further, a nation needs to have a relatively stable currency to attract investment capital from foreign
investors. Otherwise, the prospect of exchange losses inflicted by of currency depreciation may
deter overseas investors. (Twin, 2018)
There is a gap between the inflow and outflow of the foreign exchange in the market. Export
earnings and remittances have not kept pace with imports and this has resulted in a shortage
of dollars. So, the current record balance posted an enormous shortfall in the main quarter of the
monetary year. This mirrors the current remote money deficiency. Since most external
transactions in Bangladesh are done with the US dollar, it may be regarded as a proxy for foreign
exchange. If the overall balance in this account is positive it reflects an excess of dollars in the
market, and when it is negative dollars are in short supply. The inflow of remittances has slowed
down very sharply, opening up a large current account deficit for the first time in five years. This
event could force a depreciation of the taka. (Taslim, 2017)

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NO SURPRISE; IT KEEPS GROWING
From the news article published in Daily Star on December 31, 2015, we can see that even with
imposing difficulties, the Bangladesh economy kept on hinting at versatility all through the
FY2015-16 period. Macroeconomic steadiness was kept up, because of decreasing inflation,
contained spending deficiency, and substantial surpluses in both current and money related records
to be determined of installments (BOP), which was strengthened by amazing growth in export and
rise in FDI, and expanding reserves of foreign exchange. Decreasing interest rate on loan has
assumed an essential job in the recuperation of credit development to the private sector. Temporary
appraisals of total national output (GDP rate for FY2015-16 is characteristic of solid execution.
(Rahman, 2015).
Increase in real GDP causes Economic growth. Economic growth means an increase in national
output and national income. When a country's GDP is high it means that the country is increasing
the amount of production that is taking place in the economy and the citizens have a higher
income. So people have more purchasing power and more money for consumption. The import
of foreign goods increases. As import increases, the demand for foreign currency increases. So
the value of the foreign currency increases. The foreign currency appreciates. This event could
force Taka to depreciate. (Research Gate, 2017)

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FORECASTING
Purchasing power parity theory aims to determine the adjustments needed to be made in the
exchange rates of two currencies to make them at par with the purchasing power of each
other. Relative purchasing power parity relates the change in two countries' expected inflation rates
to the change in their exchange rates. Inflation reduces the real purchasing power of a nation's
currency. (Hall, 2018)
Inflation rate 2014-2018:
Inflation rate 2014 2015 2016 2017 2018
USA If .8% .7% 2.1% 2.1% 2.5%
Bangladesh Ih 7% 6.19% 5.52% 5.70% 5.40%
Figure 1 Inflation rate of the USA and Bangladesh (2014-2018)
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
2 0 1 4 2015 2016 2017 2018
USA Bangladesh

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Ih = inflation rate in the home country
If = inflation rate in the foreign country
ef = % change in the foreign currency’s value
ef = (1 + ih ) _ 1
(1 + if )
For 2013, Ih- If=7.5%-1.5%=6.0%, 1$=77.09tk on 29Dec, 2013
Ih> If , Foreign currency will appreciate roughly by 6.0%
ef=(1.075/1.015)-1 = .0591= 5.91%
For 2014, F=S(1+ef)
=Tk 77.09(1+.0591) =81.65Tk/Dollar
For 2014, Ih- If=7%-.8%=6.2%
Ih> If , Foreign currency will appreciate roughly by 6.2%
ef=(1.07/1.008)-1 = .0615= 6.15%
On 31 dec, 2014, spot rate= Tk77.94/dollar
For 2015, F=S(1+ef)
=Tk 77.94(1+.0615) =82.73Tk/Dollar
For 2015, Ih- If=6.19%-.7%=5.49%, 1$=78.10Tk on 30Dec, 2015
Ih> If , Foreign currency will appreciate roughly by 5.49%
ef=(1.0619/1.007)-1 = .0545= 5.45%
For 2016, F=S(1+ef)
=Tk 78.10(1+.0545) =82.36Taka/Dollar

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For 2016, Ih- If=5.52%-.2.1%=3.42%, 1$=78.92Tk on 29Dec, 2016
Ih> If , Foreign currency will appreciate roughly by 3.42%
ef=(1.0552/1.021)-1 = .0335= 3.35%
For 2017, F=S (1+ef)
=Tk 78.92(1+.0335) =81.56 Taka/Dollar
For 2017, Ih- If=5.70%-.2.1%=3.6%, 1$=82.75Tk on 31dec, 2017
Ih> If , Foreign currency will appreciate roughly by 3.6%
ef=(1.057/1.021)-1 = .0353= 3.53%
For 2018, F=S (1+ef)
=Tk 82.75(1+.0353) =85.67 Taka/Dollar
For 2018, Ih- If=5.40%-.2.5%=2.9%, 1$=83.23Tk on Nov, 2018
Ih> If , Foreign currency will appreciate roughly by 3.6%
ef=(1.0540/1.0250)-1 = .0283= 2.83%
For 2019, F=S (1+ef)
=Tk 83.23(1+.0283)
=Tk85.59/dollar.
2014 2015 2016 2017 2018 2019
Forw
ard
rate
81.65Tk/D
ollar
82.73Tk/D
ollar
82.36Taka/
Dollar
81.56Taka/
Dollar
85.67Taka/
Dollar
85.59taka/d
ollar.

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2014 to 2015 Bangladeshi currency was depreciated at 1.08 BDT but from 2015 to 2016 it was
appreciated at 0.1BDT.2016 to 2017 it was appreciated again 1.07BDT.2017 to 2018 Bangladeshi
currency was depreciated 4.11BDT. And 2018 to 2019 it was appreciated 0.08 BDT.
79
80
81
82
83
84
85
86
2014 2015 2016 2017 2018 2019
FORWARD RATE
Forward rate

23. P a g e | 23
CONCLUSION
Observing 2018 and past two years we have come up with 3 events that directly and indirectly
affect BDT in the Forex Market. Foreign Exchange rate (FOREX rate) is a standout amongst the
most critical means through which a nation's overall level of economic health is determined. A
nation's foreign exchange gives a window to its financial strength, which is the reason it is
continually watched and examined. We have how inflation, interest rate, and poor monetary policy
is causing to fluctuate the exchange rate of Bangladesh.
We have also used the forward rate equation to forecast the future rate of BDT. We suggest
avoiding any potential falls in currency exchange rates, opt for a locked-in exchange rate service,
which will guarantee that our currency is exchanged at the same rate despite any factors that
influence an unfavorable fluctuation.

24. P a g e | 24
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