Uses of money market instrument in Bangladesh -Eastern Bank Limited(EBPL)

Uses of Money Market Instruments in Bangladesh 6
Chapter I
Introductory Aspects

1.1 Background of the Study
Each BBA student of the Premier University Chittagong will have to submit
an Term paper Report in partial fulfillment of his/her BBA program. The
actual goal of my assignment is to disclose a true picture about the credit
risk grading of the banking sector. Bangladesh economy has been
experiencing a rapid growth since the '90s. Industrial and agricultural
development, international trade, inflow of expatriate Bangladeshi workers'
remittance, local and foreign investments in construction, communication,
power, food processing and service enterprises ushered in an era of
economic activities. The aim of the term paper program is to become aware
the student about the official correspondents, managerial behavior,
decision-making process, motivating system, supervision, interpersonal
relations and many more. Now the world is a competitive world. So
everybody has to be expert in both practical and theoretical knowledge. The
proposed topic of this term paper report is “Uses of money market in
Bangladesh” and I focused on Eastern Bank limited how the financial
institution works with money market. This report is the partial fulfillment of
BBA program as assigned by my honorable supervisor.
1.2 Objectives of the study
Eastern Bank Limited is one of the fast growing 2nd generation bank in
Bangladesh. I have been assigned to do my report here. I have also been
assigned with some objectives to be filled up during this term paper
program. This study is aimed at providing me invaluable knowledge on
current business trend of money market in Bangladesh. The objectives of
study are as following:
1) To understand the procedure that DBL is practicing to provide the
money market services
2) To identify the faced problems with money market
3) To recommends for regulating money market properly
4) To know the functioning of money market in the Bangladesh economy

5) To identify and briefly explain different modes of investment in the
money market used by the eastern bank
1.3 Scope of the Report
This study covers the some important aspects of trade financing of a
commercial bank such as the different modes of investment in the money
market by the bank, Product of money market, Bank investment in the
money market & the overall conditions of money market. The performance of
money market can greatly influence the financial market of the economy
and so studying like important topics will help me to get exposure me in
getting the practical knowledge about the financial market of the economy.
1.4 Methodology of the Study:
The study impute were collected from secondary sources:
Secondary sources
Annual Report
Different books, Journals, Periodicals, News papers, Websites on
Bangladesh money market
Different circulars sent by Head Office and Bangladesh Bank.

1.5 Limitation of the Report
Every matter has got some limitation. So this is also not an exception. The
limitations of this term paper are been sated below:
 Available data also could not be verified.
 EBL as a commercial bank they are very busy and they could not able
to give me enough time for discussion about various topics.
 Due to time and cost restriction, the study is concentrated in selected
areas.
 To continue study in such a vast are requires a big deal of time. The
time I got to do report which is not enough.

Chapter II
Theoretical Aspects

2.1 Money Market
Network of banks, discount houses, institutional investors, and money
dealers who borrow and lend among themselves for the short-term (typically
90 days). Money markets also trade in highly liquid financial instruments
with maturities less than 90 days to one year (such as bankers' acceptance,
certificates of deposit, and commercial paper), and government securities
with maturities less than three years (such as treasury bills), foreign
exchange, and bullion. Unlike organized markets (such as stock exchanges)
money markets are largely unregulated and informal where most
transactions are conducted over phone, fax, or online. Long-term borrowing
and lending markets are called capital markets.
Market for short-term debt securities, such as banker's acceptances,
commercial paper, repos, negotiable certificates of deposit, and Treasury
Bills with a maturity of one year or less and often 30 days or less. Money
market securities are generally very safe investments which return a
relatively low interest rate that is most appropriate for temporary cash
storage or short-term time horizons. Bid and ask spreads are relatively small
due to the large size and high liquidity of the market.”

2.2 Players in Money Market
The money market consists of financial institutions and dealers in money or
credit who wish to either borrow or lend. Participants borrow and lend for
short periods of time, typically up to thirteen months. Money market trades
in short-term financial instruments commonly called "paper." This contrasts
with the capital market for longer-term funding, which is supplied by bonds
and equity.
The core of the money market consists of interbank lending--banks
borrowing and lending to each other using commercial paper, repurchase
agreements and similar instruments. These instruments are often
benchmarked to (i.e. priced by reference to) the London Interbank Offered
Rate (LIBOR) for the appropriate term and currency.
Finance companies typically fund themselves by issuing large amounts of
asset-backed commercial paper (ABCP) which is secured by the pledge of
eligible assets into an ABCP conduit. Examples of eligible assets include
auto loans, credit card receivables, residential/commercial mortgage loans,
mortgage-backed securities and similar financial assets. Certain large
corporations with strong credit ratings, such as General Electric, issue
commercial paper on their own credit. Other large corporations arrange for
banks to issue commercial paper on their behalf via commercial paper lines.
In the United States, federal, state and local governments all issue paper to
meet funding needs. States and local governments issue municipal paper,
while the US Treasury issues Treasury bills to fund the US public debt:
Trading companies often purchase bankers' acceptances to be
tendered for payment to overseas suppliers.
Retail and institutional money market funds
Banks
Central banks
Cash management programs

Merchant banks
2.3 Functions of the money market
Functions of
the money
market
Transfer of
large sums of
money
Transfer from
parties with
surplus funds
to parties with
a deficit
Allow
governments
to raise funds
Determine
short-term
interest rates
Help to
implement
monetary
policy
Figure 1: Functions of Money Market

2.4 Common Money Market Instruments
Treasury
bills
Money
funds
Short-lived
mortgage-
Municipal
notes
Federal
funds
Federal
agency
short-term
securities
Eurodollar
deposit
Commercial
paper
Repurchase
agreements
Certificate
of deposit
Common
Money
Market
Instruments
Figure 2: common money market instruments

 Certificate of deposit - Time deposit, commonly offered to consumers
by banks, thrift institutions, and credit unions.
 Repurchase agreements - Short-term loans—normally for less than
two weeks and frequently for one day—arranged by selling securities
to an investor with an agreement to repurchase them at a fixed price
on a fixed date.
 Commercial paper - short term promissory notes issued by company
at discount to face value and redeemed at face value
 Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank
branch located outside the United States.
 Federal agency short-term securities - (in the U.S.). Short-term
securities issued by government sponsored enterprises such as the
Farm Credit System, the Federal Home Loan Banks and the Federal
National Mortgage Association.
 Federal funds - (in the U.S.). Interest-bearing deposits held by banks
and other depository institutions at the Federal Reserve; these are
immediately available funds that institutions borrow or lend, usually
on an overnight basis. They are lent for the federal funds rate.
 Municipal notes - (in the U.S.). Short-term notes issued by
municipalities in anticipation of tax receipts or other revenues.
 Treasury bills - Short-term debt obligations of a national government
that are issued to mature in three to twelve months.
 Money funds - Pooled short maturity, high quality investments which
buy money market securities on behalf of retail or institutional
investors.
 Foreign Exchange Swaps - Exchanging a set of currencies in spot
date and the reversal of the exchange of currencies at a predetermined
time in the future.
 Short-lived mortgage- and asset-backed securities

Chapter III
Practical Aspects

3.1 Eastern Bank Limited:
Over the years EBL has established itself as a leading private commercial
bank in the country with undisputed leadership in Corporate Banking and a
strong Consumer and SME growth engines. With a vision to become the
bank of choice and to be the most valuable financial brand in Bangladesh,
Eastern Bank Ltd. (EBL) began its journey in 1992. EBL’s ambition is to be
the number one financial services provider, creating lasting value for its
clientele, shareholder, and employees and above all for the community it
operates in.
3.1.1 Product Basket
Bangladesh Banking Sector has grown from strength to strength over the
past one decade and is fiercely competitive, especially in the Consumer
Banking segment. EBL offers a wide range of depository, loan and card
products to cater virtually for every customer segment. From Student
Banking to Priority Banking to Platinum card EBL has almost all banking
products in its repertoire. The product basket is rich in content featuring
different types of Savings & Current Accounts, Personal Loans, Debit Cards,
Credit Cards, Pre-paid Cards, Internet Banking, Corporate Banking, SME
Banking, Investment Banking, Treasury & Syndication services. The
customers are served through a network of 49 Branches, 74 ATMs and 6
Kiosks countrywide. EBL has its presence in 11 major cities/towns in the
country including Dhaka, Chittagong, Sylhet, Khulna, Rajshahi & Cox’s
Bazar.
3.1.2 Product Innovation
EBL is known for its product innovation in the market. During the past five
years, EBL introduced 12 new-to-Bangladesh financial products and
services. EBL Matribhumi – the bundle product for expatriate Bangladeshis,
insurance covered monthly savings scheme, VISA corporate cards,
remittance card and mobile–based remittance solution are just a few of
them. On the SME banking window EBL offered customer–friendly and

groundbreaking products like EBL Uddom and EBL Mukti. At present, EBL
Consumer, SME and Corporate Banking units are capable of handling every
kind of customer financial needs.
Things that unknown to people :
• EBL is the first bank in Bangladesh to go online.
• EBL provided the first “Green Loan” in Bangladesh in Solar Panel
manufacturing plant which will contribute to transform the lives of 1
million people of the most remote and off-grid areas by lighting up
their homes.
• EBL is the first ever local bank to finance Aircraft purchase deal of
Biman Bangladesh Airlines. Prior to this, only multinational banks
used to finance such projects.
• EBL generates highest profitability per employee in Bangladesh
Banking sector.
• EBL launched first ever Bank- sponsored Mutual Fund in Bangladesh.
3.2 Bank’s Vision:
To become the bank of choice by transforming the way, they can do
business and developing a truly unique financial institution that delivers
superior growth and financial performance and be the most recognizable
brand in the financial services in Bangladesh.
3.3 Bank’s Mission Statement :
 To deliver service excellence to all its customers, both internal and
external.
 To ensure maximum shareholders' value.
 To constantly challenge its systems, procedures and training to
maintain a cohesive and professional team in order to achieve service
excellence.

 To create an enabling environment and embrace a team based culture
where people will excel.
3.4 Bank’s Values
• SERVICE EXCELLENCE
 We passionately drive customer delight.
 We use customer satisfaction to accelerate growth.
 We believe in change to bring in timely solution.
• OPENNESS
 We share the business plan.
 We encourage two way communications.
 We recognize achievements, celebrate results.
• TRUST
 We care for each other.
 We share learning/ knowledge.
 We empower our people.
• COMMITMENT
 We know our roadmap.
 We believe in 'continuous improvement'.
 We do not wait to be told.
• INTEGRITY
 We say what we believe in.
 We respect every relationship.
 We do not abuse information power.
• RESPONSIBLE CORPORATE CITIZEN
 We are tax-abiding citizen.
 We promote protection of the environment for our children.

 We conform to all laws, rules, norms, sentiments and values of the
land.
3.5 Corporate Slogan
SIMPLE MATH
TEAM
3.6 Corporate Address
Head Office : 10, Dilkhusa C/A
Jibon Bima Bhaban,
Dhaka – 1000, Bangladesh.
Tel : 880-2-9556360 , Fax : 880-2-9562364, 9554610.
Swift :EBLDBDDH, Cable :EASTBANK.
Email : info@ebl-bd.com.
Web :www.ebl.com.bd.
3.7 Company Milestones
 August 16, 1992: Date of commencement of banking operations.
 July 17, 2003: First online banking operations across all the
branches.
 June 6, 2006: EBL launched SME Banking Division.
 November 09, 2006: Signed agreement with ADB to become ADB’s
partner bank under their Trade Finance Facilitation Program (TFFP)
supporting guarantee and revolving credit facility.
 April 26, 2009: EBL launched Priority Banking for premium customer
segment.
 February 2013: EBL launched EBL VISA Platinum Card.
 September 21, 2013: EBL launched VISA Corporate Platinum Card for
the first time in Bangladesh.

3.8 EBL Organ gram:
Managing Director
&CEO
Company
Secretary
Md’s
Secretariat
DMD
Consumer
banking
Cards
NRB
SME
Service
Delivery
Trade
Service
NRB back
office
Treasury
Back Office
Operations DMD HRD Finance
Corporate
Investment/
Merchant
Banking
Treasury
ID
ICC CRM
Consumer
Credit
CAD
IT
IT
consultant
yant
Admin
SAMD
(Corporate)
SAMD(SME)
Brand
&Marketing
Consumer
Collection

3.9 Corporate directory:
NAME OF THE COMPANY :
Eastern Bank Limited.
COMPANY REGISTRATION NUMBER :
C-22554(961)/92
BANGLADESH BANK LICENSE NUMBER :
BL/ DA/ 5926/ 92
CAPITAL (December 31,2013)
Authorised Capital : Tk. 12,000,000,000(1,2000,000,000 ordinary shares of
Tk. 10 each )
Paid up Capital : Tk.2,920,811,400(292,081,140 ordinary shares of Tk.10
each )
ACCOUNTING YEAR END
December 31.
3.10 EBL Management
The EBL Management Team or Management Committee (ManCom)
comprises of a group of eleven people and each of them comes with an
international working background and are committed in leveraging their
experiences to take EBL to greater heights by ensuring top line revenues
with dynamic capabilities.
The objective of EBL ManCom is to drive the business to maximize the
operational excellence and efficiency through acquisition of talent,

developing systems, processes and people and through blending in of these
to let customers revel in with fulfillment and permanency.
3.11 Organ gram of EBL ManCom
Ali Reza Iftekhar
Managing Director and CEO
Muklesur Rahman
Deputy Managing Director (Consumer Banking)
Md. Fakhrul Alam
Deputy Managing Director (Corporate Banking & Treasury)
Mahbubul Alam Tayiab
Senior Executive Vice President & Head of ICCD
Syed Rafiqul Haq
Area Head-Dhaka, Corporate Banking
Malick Musfique Reza
EVP & Head of Finance
Md. Sirajul Islam
Head of Human Resources
Safiar Rahman, FCS
SEVP & Company Secretary
Abul Moqsud
Head of Credit Risk Management
A.M.M Moyen Uddin
Head of Information Technology
Akhtar Kamal Talukder
Head of SAMD (Corp)
Sami Karim
Head of SAMD (SME)
Omar F. Khandaker
IT Consultant

3.12 Eastern Bank Limited: Achievements
EBL believes in relationship building and focuses on sustainable and long
term growth – both for the bank, its clients and the community it operates
in.
Despite the constant threat of the global economic recession and its
subsequent effect on the Bangladesh market in 2009, EBL's Profit After Tax
grew by 84% last year.
The Non Performing Loan Ratio dropped to 2.46% from 3.30%. The same
year, Earning per Share (EPS) had increased by around 70% and Cost to
Income ratio remained 35.64% which is one of the lowest in the industry.
And in 2013 the bank's Credit Rating increased to AA from AA-, which was
A+ in the year before.
EBL’s sincere efforts are well-appreciated by all and have gotten recognitions
from local and international institutions like Institute of Chartered
Accountants in Bangladesh, Superbrands Inc., South Asian Federation of
Accountants.
3.13 EBL’S Business Principles:
 Outstanding customer services
 Effective and efficient operations
 Strong capital liquidity

 Conservative lending policy
 Strict expense discipline
Eastern Bank Limited
Eastern Bank Limited
Balance Sheet as on 31.12.2013
Particulars Details Amount in BDT Total amount in BDT
Current Assets calculation
Stock 2,965,526,662
Book Debt 879,296,451
Advance, deposit and Pre-
payments
142,239,277
Cash and Bank Balances
451,451,930
Total Current Assets
3,717,062,390
Fixed Assets Calculation
Tangible Fixed Assets 1,437,114,119
Preliminary Fixed Assets 298,040
Share Issue Expense 6,341,498
Total Fixed Assets 1,443,753,657
Current Liability Calculation
Creditors and Accruals 684,666,844
Advance against sales 37,778,901

Short term Bank loan 2,390,974,361
Provision for workers profit
participation fund
6,144,665
Unclaimed Divident 3,973,500
Current portion of term loan 97,248,800
Lease finance due within 01
year
11,829,052
Propsoed Divident 80,017,200
Deffered Income Tax 70,004,579
Total Current Liability
1,392,457,504
Long term liability
calculation
Term Loan (secured) 788,289,421
Lease Finance (secured)
-
Loan from Associated
Companies (unsecured)
216,640,519
Long term Loan
1,004,929,940
Total Loan Liability Current & fixed liability
4,397,567,842
Share Holders Equity
calculation
share Capital 533,448,000
Ratained Earnings 21,252,135
Total shareholders equity

456,700,935
TOTAL ASSETS
5,652,967,508
TOTAL LIABILITIES AND OWNERS EQUITY
5,652,967,508
Profit & Loss Account
Net Sales 1,956,096,334
Less: Cost of goods sold 984,819,715
Gross Profit 354,276,289
Less: Operating expenses 34,226,135
Less: Financial Expenses 194,106,893
Less: WPPWF 6,144,665
Less : Amortization of
preliminary Expanses
149,020
Less: Amortization of Share
Issue Expanses
2,113,833
Net profit before tax 114,485,789
Less: Provision for income tax 42,916,841
Profit after Tax 71,568,948
Calculation of EBITDA
Profit after tax 71,568,948
Add: provision for tax 42,916,841
Add: Financial Expenses 194,106,893
Add: Amortization 2,262,853

Add: Depreciation 59,547,892
EBITDA 470,954,081
Summery for Financial Risk Measurement as a part
of CRG:
1. Total Liabilities 5,652,967,508
2. Shareholders Equity 456,700,935
3. Current Assets 3,717,062,390
4. Current Liabilities 1,392,457,504
5. EBITDA 470,954,081
6. Interest on debt 194,106,893
7. Sales 1,956,096,334
Debt-Equity Ratio 1.99
Current Ratio 1.60
Operating Profit Margin 30%
Interest Service Coverage
Ratio
3.5
3.14 Uses of Money market instruments in Bangladesh
Until problems surfaced during the global financial crisis, money markets
were often taken for granted as plain-vanilla, low-volatility segments of the
financial system.
For the most part, money markets provide those with funds—banks, money
managers, and retail investors—a means for safe, liquid, short-term
investments, and they offer borrowers—banks, broker-dealers, hedge funds,

and nonfinancial corporations—access to low-cost funds. The term money
market is an umbrella that covers several market types, which vary
according to the needs of the lenders and borrowers.
One consequence of the financial crisis has been to focus attention on the
differences among various segments of money markets, because some
proved to be fragile, whereas others exhibited a good deal of resilience.
For the short term
These markets are described as “money markets” because the assets that
are bought and sold are short term—with maturities ranging from a day to a
year—and normally are easily convertible into cash. Money markets include
markets for such instruments as bank accounts, including term
certificates of deposit; interbank loans (loans between banks); money
market mutual funds; commercial paper; Treasury bills; and securities
lending and repurchase agreements (repos). These markets comprise a large
share of the financial system—in the United States, accounting for about
one-third of all credit, according to the Federal Reserve Board’s Flow of
Funds Survey.
These money market instruments, many of them securities, differ in how
they are traded and are treated under financial regulatory laws as well as in
how much a lender relies on the value of underlying collateral, rather than
on an assessment of the borrower.
The most familiar money market instruments are bank deposits, which are
not considered securities, even though certificates of deposit are sometimes
traded like securities. Depositors, who are lending money to the bank, look
to the institution’s creditworthiness, as well as to any government programs
that insure bank deposits.
Interbank loans are not secured by collateral, so a lender looks exclusively
to a borrower’s creditworthiness to assess repayment probabilities. The most

closely watched interbank market is in England, where the London
interbank offered rate (LIBOR) is determined daily and represents the
average price at which major banks are willing to lend to each other. That
market did not prove to be a reliable source of funding during the crisis.
LIBOR rates rose sharply in comparison to other money market rates once
the creditworthiness of banks was called into question. Moreover, lending
volume decreased significantly as banks struggled to fund their existing
assets and were less interested in new lending. Emergency lending by
central banks helped make up for the contraction of this funding source.
Recent investigations by regulatory authorities have also called into question
the integrity of the pricing process by which LIBOR is determined.
Commercial paper is a promissory note (an unsecured debt) issued by highly
rated banks and some large nonfinancial corporations. Because the
instrument is unsecured (no more than a promise to pay, hence the name),
investors look solely to the creditworthiness of the issuer for repayment of
their savings. Commercial paper is issued and traded like a security. But
because it is short term by nature and not purchased by retail investors, it
is exempt from most securities laws. In the United States, for example,
commercial paper is issued in maturities of 1 to 270 days, and in
denominations that are deemed too large for retail investors (typically $1
million, but sometimes as small as $10,000).
The safest investment
Treasury bills, which are issued by the government, are securities with
maturities of less than a year. BD treasury bills, sold at a discount from face
value and actively bought and sold after they are issued, are the safest
instrument in which to place short-term savings. The markets are deep and
liquid, and trading is covered by securities laws. BD treasury bills are not
only savings instruments; they can be used to settle transactions. Treasury
bills, which are issued electronically, can be sent through the payments
system as readily as money.

3.15 Participation of Eastern Bank in the money market instruments
Eastern Bank is a regular participant in the money market of Bangladesh.
In this report, I emphasized on the data of 2013 to analyze the bank’s
participation in the market. Following table shows the quarterly data
regarding the banks participation
Lending Amount (in
Cr.)
Borrowing Amount
(Cr.)
year 2013 93,326 1727
year 2012 65,970 2002
lending & Borrowing status in 2012-2013
1727
93,326
65,970
2002
0
50,000
100,000
150,000
200,000
Lending Amount Borrowing Amount
year 2012
year 2013
Caption: Participation of Eastern Bank in the money market
instruments
Lending
In the year 2013 Eastern Bank, had total amount of Tk.93, 326 crore as its
lending amount to other banks which was only 65,970 in the year of 2012.
Their borrowing status was lower in the observed previous two years
denoted that their liquidity status proposition of the bank is good and have
managed fund to invest in money market.

Borrowing
Eastern Bank made its major portion of borrowing in the second quarter of
the year which was ofTk.783 crore that is the 45% of the total borrowing
and paid the lowest rate of the year. The next major borrowing was made in
the first quarter. The third quarter of the year had the lowest amount of
borrowing with highest rate for its borrowings of that year. The quarter wise
borrowing position is as follows:
Borrowing proposition Borrowing WAR
1ST Quarter 15% 9.54
2nd Quarter 45% 8.10
3rd Quarter 39% 13.30
15%
45%
39%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1st Qtr 2nd Qtr 3rd Qtr
Borrowing
Proposition
Figure 3: Quarter wise Borrowing proposition over the years

Volume of Transactions
The following table represents the total volume of Eastern Bank’s
transactions in the money market for the previous three years
1150
1530
1422
0
200
400
600
800
1000
1200
1400
1600
2011 2012 2013
Volume of transaction over the years
Volume of
Transaction
Figure 4: Volume of transaction over the years
For the year 2013 Eastern Bank made most of its transactions in the Money
market and the trend of volume of transaction over the years because it was
in sharp increase if I consider the past two years of volume of transaction. .
Analyzing the overall situation, it can be said that, Eastern Bank made its
best performance in the last year, when it made highest lending, although
the rate was not the highest. The year 2012 is at the lower point, when the
maximum borrowing was made and lowest amount of lending was made as
the rate was a bit higher than that of 2011.

3.16 Uses of money market instrument in Bangladesh
Money market in Bangladesh is composed of two broad groups of
institutions: formal and informal. The formal institutions (up to 1999)
include the Bangladesh Bank at the apex, 4 nationalized commercial banks,
27 domestic and 12 foreign private commercial banks, 9 specialized
(development) banks, 24 NON-BANK FINANCIAL INSTITUTIONs, a number of non-
scheduled banks. Informal institutions comprised mainly the moneylenders
and small co-operative organizations, which are not under the control of the
central bank. The three distinct components of organized segment of money
market of Bangladesh are the inter-bank market, money market and bill
market.
The year 1990 may be treated as a landmark in the evolution of money
market in Bangladesh. This year a comprehensive Financial Sector Reform
Program (FSRP) was undertaken to establish a market oriented financial
structure in the country. The objectives of FSRP were to deregulate lending
activities, replace the refinance facilities with rediscount facility, and abolish
the administered interest rate regime. Subsequently, introduction of new
money market instruments such as certificate of deposits (CDs), Bangladesh
Bank bills of 91-days and 30-days maturity and some new government
treasury bills were introduced to accelerate the pace of development of
money market in the country.
Inter-bank market operates within a limited scale in the form of inter bank
deposits and borrowings and has virtually no fixed price fixing mechanism.
Traditionally, scheduled commercial banks lend to each other when they are
in need of temporary funds. Sometimes, banks also keep a part of their
resources to other banks as deposits and borrow as and when needed
against the lien of those deposits. Small banks usually keep their funds as
deposits with large banks for safety.

Non-bank financial institutions also take part in inter-bank market
operations in Bangladesh by way of lending their fund to the deficit banks.
The inter-bank transactions are concentrated mainly in Dhaka city but may
also be found in other parts of the country. As part of fund management,
branch offices of banks, which can not send their surplus funds to their
respective head offices, usually keep them in their nearest big branch or in
other banks and draw the funds back as and when needed.
Inter-bank transactions, although constitute an integral part of money
market, comprise a small portion of total banking activities. Inter-bank
deposits as percent of total deposits varied between 2 and 5 percent during
1986-99. This indicator was between 1.6 and 2.5 percent during the FSRP
period of 1990-96. Historically, there appears to be a positive correlation
between growth of inter-bank deposits and excess cash reverses of the
banking system. Total inter-bank deposits increased from Tk 3.4 billion in
June 1986 to Tk 25 billion in December 1998. Excess cash reverses
increased during this period from Tk 1.3 billion to Tk 21.5 billion.
The deposit resources of banks registered an increase of Tk 122.6 billion or
an yearly average growth of 22% during the period between June 1986 to
June 1991 and 18% during June 1991- June 1998. That the money market
is not much developed in Bangladesh is depicted from the growth pattern of
deposits of the country.
Certificate of deposit was introduced as a money market instrument in
Bangladesh in 1983. Its objective was to strengthen the money market and
bring idle funds, including those arising from black money and unearned
incomes, within the fold of the banking system. The Bearer of Certificate of
Deposits (BCD) with a fixed maturity is issued by and payable at the bank to
Bangladeshi nationals, firms and companies. The certificate does not
contain the name of the purchaser or holder. The interest rate is not fixed as
in the case of other deposit resources accepted by the banks at present.

Call money market is the most sensitive part of money market, in which a
good number of players from the banking as well as the non-bank financial
sector actively participate on a regular basis. Initially, this market developed
as an inter-bank market where the banks in temporary deficit of cash
resorted to borrowing from other banks having surplus funds. As banks
were in the public sector until the beginning of the 1980s, the Bangladesh
Bank provided them with liberal refinance facilities at concessional rates.
There was hardly any need for raising funds from the call money market
during this period. Moreover, administered interest rate regime, easy
availability of borrowing from central bank and its directive to provide credit
to priority sectors were the major impediments in development of a call
money market in the country. Notwithstanding the fact, banks participated
in a limited scale in the call money market mainly to wipe out the temporary
mismatch in their assets and liabilities.
A turning point was the denationalization of Uttara and Pubali Bank in 1983
and 1984 respectively and the government decision to allow private banks to
operate in the country. Formation of private banks during the 1980s
provided new opportunities to develop this segment of money market. In
1985, two investment companies and in 1989, one leasing company were
allowed to participate in the call money market. At present, all banks
including specialized ones and non-bank financial institutions are allowed
to participate in this market.
Basic features The transactions of call money market are mainly Dhaka
based. Since, the head offices of all banks and financial institutions are
located in Dhaka, the branches of the banks and financial institutions from
all over the country remit their excess funds to their respective head offices
at Dhaka for investment. The head offices, after meeting their usual liquidity
requirement invest the surplus funds in the call money market.
As there is no brokerage house or intermediary organization, the
transactions in call money market usually take place on the basis of

bilateral negotiations. Since call loans are made on clean basis, i.e., without
any security, lending institutions/banks are always cautious in the selection
of borrowing banks/institutions.
The demand for and supply of funds in the call market remains volatile
throughout the year with some occasional turbulence. The transactions and
the rate of interest are largely linked with government treasury bill market,
seasonality in demand for bank loans, central bank's monetary policy,
variation in discount rate, open market operations, changes in statutory
reserve requirements, excess liquidity position of the banks etc. The
transactions and the variations of the rate of interest in call money market
normally remains high during November to April and as such the rate of
interest during this period also goes up.
The rates of interest amidst fluctuations reached a maximum of 17% during
1998-99. Due to prolonged and devastating floods at the beginning of 1998-
99, the country's monetary policy was relaxed to enable banks to provide
necessary credit for early recovery of economic activities. Easy access of the
scheduled banks to the discount window of the Bangladesh Bank helped
them holding liquidity position at a comfortable level. The banks borrowed
an amount of Tk 9.15 billion from the Bangladesh Bank during 1998-99 as
compared to a much lower amount of Tk 1.13 billion during 1997-98.
Moreover, excess reserve position of the banks increased by Tk 4.96 billion
during 1998-99 as compared to an increase of Tk 9.78 billion in the
preceding year. As a result, the call money market witnessed a lower
pressure during 1998-99.
Bill market is restricted to buying and selling of government treasury bills.
In the past, it was basically concentrated in transaction of government
treasury bills of 3-month maturity at predetermined rates. Commercial
banks were obliged to buy these bills as approved security to meet their
statutory liquidity requirement (SLR) under the Banking Companies Act.
Moreover, these instruments were being used to mop up excess cash from

the banking sector and help government to borrow money from banks to
meet its budgetary shortfall. In fact it was a guilt-edged market where both
the principal and interest was guaranteed by the government. Bangladesh
Bank, on behalf of the government, was entirely responsible for arranging
buying and selling of treasury bills. However, the availability of the
government treasury bills depended only on the fiscal consideration of the
government. Bangladesh Bank had no scope of its own to increase or
decrease their supply. Besides, interest rates were not market based and
were fixed arbitrarily by the government from time to time. In addition to the
commercial banks, Bangladesh Bank also had to hold a portion of
government treasury bills.
The holdings of treasury bills by the deposit money banks (DMB) were only
Tk 0.94 billion on 30 June 1973 and the rate of interest was 6%. Amidst
fluctuations, the volume went up to Tk 9.54 billion at the end of June 1986.
The rates of interest went up to 9% at that time. Although the rate of
interest declined to 8% at the beginning of 1987, the treasury bill holdings
by the DMBs went up substantially to Tk 12.51 billion at the end of June
1987. The treasury bill holdings reached a peak of Tk 45.12 billion at the
end of June 1993 and thereafter, it declined to Tk 0.46 billion at the end of
June 1995. However, the treasury bill holdings shoot up to Tk 49.73 billion
by May 1999. It may be assumed that lower treasury rate as compared to
higher yield on Bangladesh Bank Bill might have induced the banks to shift
their portfolio investments in favour of the latter. However, due to
suspension of auctioning of Bangladesh Bank Bills government treasury
bills, other than the commercial bill segment, have become the only
instruments in the bill market.

3.17 SWOT ANALYSIS OF EASTERN BANK LTD.
Strength
 Very good profit margin achieved by the last few years
 Strong capital back up brings available liquidity
 Efficient and experienced management team
 Directors of the bank are not over ruling the decisions made by the
management team
 Several deposits schemes and financial products offered by the
organization. So clients have enough options to invest their money.
 Bank quickly expanding its business all over the country.
Weakness:
 Performance of the marketing sector is really poor
 Officers are limited experienced and not enough trained
Opportunities:
 Clients reliability on EBL is growing day by day on the bank
 Business Banking
 Diversification
 Modern facilities & computerization
 Stirring Branches
 Interactive Corporate Culture
Threats:
 Very competitive market.
 Our political unsuitability effects the banking sector very often.
 Our economy now passing recession this also effects the bank.
 Central banks policies some times are not in favor of the private.
 Competitors have more deposits
 Competitors have more products and services
 Competitor’s increasing interest rate against FDR for their clients.

3.18 Findings
Though the Bangladeshi money market is considered as the advanced
money market among developing countries, it still suffers from many
drawbacks or defects. These defects limit the efficiency of our market.
Some of the important defects or drawbacks of Bangladeshi money market
are :-
 The Bangladeshi economy with its seasonal structure faces frequent
shortage of financial recourse. Lower income, lower savings, and lack
of banking habits among people are some of the reasons for it. So
there are insufficient resources.
 In the Bangladeshi money market, various investment instruments
such as Treasury Bills, Commercial Bills, Certificate of Deposits,
Commercial Papers, etc. are used. But taking into account the size of
the population and market these instruments are inadequate. So
Bangladesh money market has scarcity of Investment Instruments.
 The Bangladeshi money market is broadly divided into the Organized
and Unorganized Sectors. The former comprises the legal financial
institutions backed by the RBI. The unorganized statement of it
includes various institutions such as indigenous bankers, village
money lenders, traders, etc. There is lack of proper integration
between these two segments. So there is absence of integration that
should be recovered.
 In the Bangladeshi money market, especially the banks, there exists
too many rates of interests. These rates vary for lending, borrowing,
government activities, etc. Many rates of interests create confusion
among the investors. So the multiple rate of interests should be
treatment.
 In Bangladesh, as many banks keep large funds for liquidity purpose,
the use of the commercial bills is very limited. Similarly since a large
number of transactions are preferred in the cash from the scope for

commercial bills are limited. There is enough shortage of commercial
bill.
 There are poor number of dealers in the short-term assets who can act
as mediators between the government and the banking system. The
less number of dealers leads the slow contact between the end lender
and end borrowers. In Bangladesh there is a short of dealers.
 In Bangladesh even through we have a big network of commercial
banks, still the banking system suffers from major weaknesses such
as the NPA, huge losses, poor efficiency. The absence of the organized
banking system is major problem for Bangladeshi money market.
There is a great be short of in the organized banking system.
These are my findings I got regarding doing this report as highlighted in the
above quotation are the major drawbacks in the money market of
Bangladesh.

Chapter IV
Conclusion Aspects

4.1 Recommendation
I noted some recommendations with considering the problems of money market
highlighted in my findings section could be structured as follows:
 To develop a well organized and sound call market in Bangladesh its scope
should be expanded. Now-a-days there are a good number of investment
as well as leasing companies operating in the country with experience of
utilizing money in variety of uses. Moreover, insurance companies also
mobilize plenty of fund that can be utilized effectively if they are allowed
to operate in the call market. Therefore, to broaden area of call market
such institutions may be allowed to participate in the country’s Money
market.
 Money rate, maximum and minimum along with Bank Rate should be
regularly published in the daily news papers.
 Monetary authority in Bangladesh can effectively use this market as an
efficient means of mobilization and allocation of domestic resources.
 The current practice of maintaining liquidity ratio for the banks at 20 per
cent may be gradually reduced to a minimum, so that more fund can be
made available in this market.
 Seasonal credit demand might also be assessed on the basis of transaction
in this market and further credit program for the banking sector may be
formulated accordingly.
 Bangladesh Bank, as a guardian of money market, may help in developing
this market by formulating detailed rules and regulations covering the
operations and obligations of participants in such market.

 The banks whose transactions fluctuate abnormally as well as those who
borrow at a very high rate of interest, should be looked into separately to
identify their problems.
 The rate of interest in this market reflects the market interest rate, and
therefore, it may be taken as a useful indicator while changing Bank Rate
to affect the cost of credit in the banking sector.
4.2 Conclusion:
Bangladesh Banking Sector has grown from strength to strength over the past
one decade and is fiercely competitive, especially in the Consumer Banking
segment. With a vision to become the bank of choice and to be the most valuable
financial brand in Bangladesh, Eastern Bank Ltd. (EBL) began its journey in
1992. Over the years EBL has established itself as a leading private commercial
bank in the country with undisputed leadership in Corporate Banking and a
strong Consumer and SME growth engines. EBL’s ambition is to be the number
one financial services provider, creating lasting value for its clientele,
shareholder, and employees and above all for the community it operates in. The
money market in Bangladesh is in its intermediary stage. The various
constituent parts of it are in the process of formation, while continuous efforts
are being made to develop appropriate and adequate instruments to be traded in
the market. At present, government treasury bills of varying maturity,
Bangladesh Bank Bills and Certificates of Deposits etc in limited supply are
available for trading in the market. If the financial regulate of Bangladesh
nurture it properly, this can be a good milestone for Bangladesh economy. After
considering all the aspects of money market instruments in Bangladesh can be
concluded with a sentence is that the scope of financial practicing is dramatically
increasing and the money market should be more in more concern to use it
properly in the economic development of our country.

Refferences
Money & capital market by Rose

Uses of money market instrument in Bangladesh -Eastern Bank Limited(EBPL)

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