This document is a report submitted by a group of students to their professor. It includes a letter of transmittal, acknowledgments, table of contents, and sections on the Bangladeshi Taka currency, literature review on factors affecting exchange rates, examples of global and local events impacting exchange rates, and forecasts. The group analyzed how monetary policy crises, purchasing power vs foreign exchange value, and US-China trade wars could impact the Bangladeshi Taka exchange rate. They concluded the report with forecasts on how certain events may cause the Taka to appreciate or depreciate.
Factors Influencing Exchange Rate: An Empirical Evidence from BangladeshMd. Shohel Rana
This study examines factors that influence exchange rate fluctuations in Bangladesh from 1987 to 2017. It analyzes the impact of remittances, GDP growth, and international trade on the real effective exchange rate. Stationarity tests and Johansen cointegration tests were used to examine the long-run relationship between the variables. VAR models and Granger causality tests found that remittances, GDP growth, and international trade significantly impact exchange rate fluctuations, explaining over 60% of variations. FMOLS tests concluded that GDP growth and international trade positively affect the exchange rate, while remittances have a negative effect. In summary, increases in GDP growth and international trade are found to increase exchange rate volatility, whereas increases in remittances decrease exchange
This document provides an introduction and overview of a study on foreign currency reserves and their impact on economic growth in Bangladesh. It discusses the objectives of the study, which are to analyze the volume of foreign currency reserves in Bangladesh over the last ten years, identify the major sources and impacts of foreign remittances on Bangladesh's economy and balance of payments, and provide recommendations to increase foreign remittances and improve related processes. The methodology and sources of data for the study are also outlined.
BAFI 3200- International Finance- Group 2- Team LChau Vuong Minh
This document analyzes and forecasts the exchange rate between the USD and AUD from 1996 to 2015 using quantitative and qualitative analysis.
Quantitatively, regression models are used to analyze the relationship between macroeconomic factors and the exchange rate change. The final model found money supply, unemployment rate differential, and time series to be the most significant factors.
Qualitatively, recent economic events are expected to cause the AUD to depreciate against the USD in December. These include expected interest rate cuts by the RBA, an interest rate hike by the Fed, higher Australian GDP growth, a rising US trade deficit, and falling iron ore prices.
Based on the quantitative and qualitative analysis, the forecast exchange rate on December
Chapter 6- moneytary policy and its management for BBAginish9841502661
Monetary policy and its management discusses key concepts related to monetary policy including money supply, factors affecting money supply, objectives of monetary policy, and instruments of monetary policy. Money supply is composed of currency in circulation and bank deposits available for spending. Factors that influence money supply include net foreign assets, net domestic assets, and reserve money. The main objectives of monetary policy are price stability, full employment, and economic growth. Central banks use instruments like bank rates, reserve requirements, and open market operations to tighten or loosen monetary policy and influence money supply.
This document summarizes key concepts related to money, interest rates, and exchange rates. It discusses what money is, how the money supply is controlled by central banks, and factors that influence the demand for money, including interest rates, prices, and income. A model of aggregate money demand is presented showing the relationship between real money demand, interest rates, and income. The interaction of money supply and demand in the money market is explained, along with how changes in the money supply or national income affect interest rates. Finally, the connection between the domestic money market and foreign exchange market is described.
This document is a student's final presentation for an intermediate macroeconomics course. It includes an introduction to the student, sections on problem sets completed during the course, acknowledgments, and a proposed future research idea. The student is a junior majoring in political economy who is interested in behavior economics and education. They have been involved in various student clubs and organizations. The presentation covers four problem sets completed during the course, which analyzed topics like economic growth models and rational expectations theory. It proposes researching how decentralized monetary policy could achieve security and stability.
Factors Influencing Exchange Rate: An Empirical Evidence from BangladeshMd. Shohel Rana
This study examines factors that influence exchange rate fluctuations in Bangladesh from 1987 to 2017. It analyzes the impact of remittances, GDP growth, and international trade on the real effective exchange rate. Stationarity tests and Johansen cointegration tests were used to examine the long-run relationship between the variables. VAR models and Granger causality tests found that remittances, GDP growth, and international trade significantly impact exchange rate fluctuations, explaining over 60% of variations. FMOLS tests concluded that GDP growth and international trade positively affect the exchange rate, while remittances have a negative effect. In summary, increases in GDP growth and international trade are found to increase exchange rate volatility, whereas increases in remittances decrease exchange
This document provides an introduction and overview of a study on foreign currency reserves and their impact on economic growth in Bangladesh. It discusses the objectives of the study, which are to analyze the volume of foreign currency reserves in Bangladesh over the last ten years, identify the major sources and impacts of foreign remittances on Bangladesh's economy and balance of payments, and provide recommendations to increase foreign remittances and improve related processes. The methodology and sources of data for the study are also outlined.
BAFI 3200- International Finance- Group 2- Team LChau Vuong Minh
This document analyzes and forecasts the exchange rate between the USD and AUD from 1996 to 2015 using quantitative and qualitative analysis.
Quantitatively, regression models are used to analyze the relationship between macroeconomic factors and the exchange rate change. The final model found money supply, unemployment rate differential, and time series to be the most significant factors.
Qualitatively, recent economic events are expected to cause the AUD to depreciate against the USD in December. These include expected interest rate cuts by the RBA, an interest rate hike by the Fed, higher Australian GDP growth, a rising US trade deficit, and falling iron ore prices.
Based on the quantitative and qualitative analysis, the forecast exchange rate on December
Chapter 6- moneytary policy and its management for BBAginish9841502661
Monetary policy and its management discusses key concepts related to monetary policy including money supply, factors affecting money supply, objectives of monetary policy, and instruments of monetary policy. Money supply is composed of currency in circulation and bank deposits available for spending. Factors that influence money supply include net foreign assets, net domestic assets, and reserve money. The main objectives of monetary policy are price stability, full employment, and economic growth. Central banks use instruments like bank rates, reserve requirements, and open market operations to tighten or loosen monetary policy and influence money supply.
This document summarizes key concepts related to money, interest rates, and exchange rates. It discusses what money is, how the money supply is controlled by central banks, and factors that influence the demand for money, including interest rates, prices, and income. A model of aggregate money demand is presented showing the relationship between real money demand, interest rates, and income. The interaction of money supply and demand in the money market is explained, along with how changes in the money supply or national income affect interest rates. Finally, the connection between the domestic money market and foreign exchange market is described.
This document is a student's final presentation for an intermediate macroeconomics course. It includes an introduction to the student, sections on problem sets completed during the course, acknowledgments, and a proposed future research idea. The student is a junior majoring in political economy who is interested in behavior economics and education. They have been involved in various student clubs and organizations. The presentation covers four problem sets completed during the course, which analyzed topics like economic growth models and rational expectations theory. It proposes researching how decentralized monetary policy could achieve security and stability.
- The foreign exchange market involves the trading of one country's currency for another. It determines exchange rates through supply and demand.
- In the long run, exchange rates are determined by theories like purchasing power parity which says exchange rates will adjust over time to reflect differences in inflation. The law of one price also applies to keep identical goods priced the same globally.
- In the short run, exchange rates are the price of one country's bank deposits in terms of another's. The current and expected future exchange rates determine demand for each country's deposits and set the equilibrium exchange rate where supply meets demand.
Using The ECM Approach between Growth of the Current Account Balance and Fore...AJHSSR Journal
ABSTRACT: The aim of this research to analyze relationship equilibrium to the long-term and short-term
between the current account balance and foreign exchange reserve. As datum from the world bankstarts from
1982 until 2018, the used methodology Error Correction Model (ECM). The result of the estimate and analysis
were the current account balance and foreign exchange reserve stationary at level with the ADF test. The
variables had relationship equilibrium for the long-term and had one-way causality. That was the foreign
exchange reserve that causesthe current account balance. For the long-term, the current account balance had
positively and not significantly to change the development of the foreign exchange reserves. From the shortterm disequilibrium relationship to the equilibrium relationship, the current account balance had negatively and
not significantly too to change the development of the foreign exchange reserves.The value of the current
account balance of Indonesia has a deficit in some periods. Itwould have a bad impact on domestic foreign
exchange reserves. To the Government, the Ministry of Trade to keep the export performance to the stability of
the current account balance surplus to increase the Indonesian economic growth.
KEYWORDS : Foreign Exchange Reserve, Current Account Balance, EC
The purchasing power parity (PPP) theory compares the average costs of goods and services between countries using exchange rates. PPPs are useful for inter-country comparisons of GDP in real terms and economic data expressed in national currencies. PPPs are calculated at the product group level by comparing consumption baskets, then aggregated to GDP levels using weights. PPP exchange rates are meant to converge with actual exchange rates over the long run, though various factors can cause short-term deviations. PPPs are useful for output and productivity comparisons, while market exchange rates are better for trade-related analyses.
The document discusses various aspects of foreign exchange rates including:
1. Exchange rates are the ratio between two currencies and are quoted regularly in publications. Major world currencies include the USD, Euro, Yen, GBP, etc.
2. Exchange rates can be quoted directly or indirectly. Direct quotes place the domestic currency first while indirect quotes place it second.
3. Spot exchange rates are determined by the interplay of demand and supply forces in the foreign exchange market. Factors like the balance of payments, inflation, interest rates, and others influence spot rates.
This document summarizes a study that examined the demand for money in Nigeria over 26 years using measures of narrow and broad money, income, interest rates, exchange rates, and stock market data. The study found that Nigeria's money demand function was stable over the period examined and that income was the most significant determinant of money demand. It also found that incorporating stock market variables improved the performance of the money demand function, as stock markets have become more important for household wealth. The study recommends policies to improve stock market activities and the use of monetary targeting to control inflation.
A research project on devaluation of currency in Pakistan. Pakistan being a developing country, its economy gets affected by the rise and fall of Pakistani currency against dollar. During the time of Prime Minister Shaukat Aziz in power dollar was stable for 60 rupee. When the government changed Pakistani currency immediately fell seven rupee against dollar. Since then Pakistani currency is falling and nowadays the value is 104 and the speculation is that it will keep on falling. The devaluation of currency has a direct impact on local Pakistan traders. Foreign trade such as eatable oil, raw materials, petroleum and electronics gets expensive. This creates problems for the traders. Pakistan imports 80 percent of petroleum for its consumption. According to the Former Finance Minister Dr. Salman Shah, Pakistan spends 13 billion dollar on imports of crude oil and eatable oil. This provides a boost for domestic demands as exports become cheaper and more competitive to foreign buyers. Higher level of exports should lead to an improvement in the current account deficit. This was important in the case of the UK who had a large current account deficit of over 3% of GDP in 2008. Higher exports and aggregate demand can lead to higher rates of economic growth. Deficit financing, economic instability and money supply are the factors that influence our independent variable.
The value of a currency is determined by supply and demand factors. If demand for a country's currency is high from travelers, governments, and investors, its value increases. However, demand decreases if a country has a weak economy, high inflation, political instability, or high national debt. These factors can lower the value of a currency. Additionally, currency values fluctuate compared to each other in foreign exchange markets based on relative demand for different currencies.
Indian economy current problems and future prospectsKulandaivelu GfK
This document provides an overview of the current state of the Indian economy and prospects for the future. It notes several paradoxes, including high fiscal deficits despite low inflation and interest rates. While the current account is in surplus and foreign reserves are high, this situation is unusual for a developing country which typically relies on capital inflows to finance domestic investment. The document compares India's economic integration and performance to China's, and argues India could experience sudden capital outflows if interest rates rise abroad. Overall it suggests the economy is in an unhealthy state and private investment may be crowded out by large government deficits.
This document discusses housing issues in Saudi Arabia. It notes that there is a shortage of affordable owner-occupied housing, especially for lower-income families. Several factors have contributed to this, including demographic changes, a lack of mortgage financing options, and slow housing construction that has not kept up with demand. The Saudi government is taking steps to address the supply shortage by increasing housing loan limits and proposing a new mortgage law to facilitate financing. Real estate developers are actively working to build new residential units, but the demand-supply gap remains large.
Relation between interest and exchange rateUtkarsh Shivam
This document summarizes a macroeconomics project on the relationship between inflation, interest rates, and exchange rates. It defines key terms like foreign exchange markets, exchange rates, and interest rate parity theory. It then discusses theories of interest rate parity, purchasing power parity, and the balance of payments. Case studies on Albania and Kenya analyze the relationship between domestic interest rates and currency exchange rates. The impact on the Indian economy and future policy suggestions are also covered.
This document discusses different types of exchange rate systems and how exchange rates are determined. It outlines fixed exchange rates where a government sets the rate, floating/flexible rates where market forces determine the rate, and managed rates where a government intervenes to influence the rate. It then provides details on how demand and supply impact exchange rate equilibrium and can cause currency appreciation or depreciation under flexible systems.
China recently devalued its currency, the yuan, against the US dollar by 1.9%, the largest single-day depreciation since 2005. This move signals China's goal of achieving a floating exchange rate for the yuan and increased internationalization of the currency. In the short-term, a weaker yuan will help Chinese exporters but hurt competitors in other Asian countries. Long-term, as China transforms to a more consumer-driven economy, manufacturers in countries like South Korea and Taiwan that export to China should benefit from the trend appreciation of the yuan. The devaluation may cause volatility for the yuan exchange rate in the near future as markets adjust to the changes.
Indian foreign exchange market & rupee exchange rateNikita Bhinde
The document discusses the Indian foreign exchange market and the rupee exchange rate. It provides an overview of the key components of the forex market including instruments like currency futures, forwards, options and swaps. It also discusses determinants that impact exchange rates like inflation, interest rates, current account deficits. The document outlines how the value of the rupee can appreciate or depreciate versus other currencies and some of the factors that have led to depreciation of the Indian rupee recently. Lastly, it provides the exchange rates of the rupee versus the US dollar, British pound, euro and Japanese yen over the last 5 days.
This paper develops an equilibrium model of the determination of exchange rates and prices of goods. Changes in relative prices due to supply or demand shifts induce changes in exchange rates and deviations from purchasing power parity. These changes may create a correlation between the exchange rate and the terms of trade, but this correlation cannot be exploited by governments to affect the terms of trade through foreign exchange market operations. The model emphasizes the role of relative price changes due to real disturbances and how these changes affect both exchange rates and the terms of trade through shifts in supply and demand. Government interventions in foreign exchange markets cannot influence exchange rates if the relationship between exchange rates and terms of trade is due to shifts in real supply and demand for domestic and foreign goods.
The money supply and inflation ppt @ bec domsBabasab Patil
1. China is experiencing high inflation which can be explained by increases in the money supply.
2. The central bank, called the Federal Reserve, controls the money supply through open market operations and by adjusting reserve requirements and interest rates.
3. When the money supply increases, either the price level rises or output increases as shown by the Quantity Theory of Money equation.
This document discusses a study examining the impact of monetary policy on the financial performance of banks in Pakistan from 2007-2011. It uses interest rates set by the State Bank of Pakistan as a measure of monetary policy. The study finds that higher interest rates, representing a tighter monetary policy, have a significant negative relationship with banks' financial performance as measured by their return on assets and return on equity. The document provides background on monetary policy, its tools of expanding or contracting the money supply, and how interest rates can affect bank risk-taking and performance. It also reviews prior literature finding that higher capitalized banks may increase risk-taking less in response to lower rates than other banks.
8 key factors that affect foreign exchange ratesannadesoza123
The exchange rate is defined as "the rate at which one country's currency may be converted into another." It may fluctuate daily with the changing market forces of supply and demand of currencies from one country to another.
A comparative study of various models in forecasting INR-USD exchange rateAMAR SHAKTI KUMAR
This research paper’s aim to comparative study of various models in forecasting INR-USD
exchange rate, forecasting exchange rate for 2017 and find the best one.
The following forecasting techniques were evaluated for Comparative study: simple moving
average, weighted moving average, Exponential Smoothing average, purchasing power parity
and international fisher effect. Using recent INR-US dollar data, the research examined the
forecasting data accuracy.
First we have tested all selected models from past data and then i found that Exponential
smoothing average method produces less error comparatively, in time line analysis. And in
fundamental approach purchasing power parity produce less error.
So I found that Exponential smoothing average method is batter from all selected models
Net External Liabilities and Economic Growth: A Case Study of pakistansanaullah noonari
This document discusses the relationship between net external liabilities and economic growth in Pakistan from 1973-2012. It finds that net external liabilities, education enrollment, exports, and gross capital formation are positively associated with GDP growth, while the relationship between debt service and growth was insignificant. The document also reviews previous literature on the impact of external debt on economic growth, discusses the variables and data used in the analysis, and presents the results of unit root tests of the time series data.
- The foreign exchange market involves the trading of one country's currency for another. It determines exchange rates through supply and demand.
- In the long run, exchange rates are determined by theories like purchasing power parity which says exchange rates will adjust over time to reflect differences in inflation. The law of one price also applies to keep identical goods priced the same globally.
- In the short run, exchange rates are the price of one country's bank deposits in terms of another's. The current and expected future exchange rates determine demand for each country's deposits and set the equilibrium exchange rate where supply meets demand.
Using The ECM Approach between Growth of the Current Account Balance and Fore...AJHSSR Journal
ABSTRACT: The aim of this research to analyze relationship equilibrium to the long-term and short-term
between the current account balance and foreign exchange reserve. As datum from the world bankstarts from
1982 until 2018, the used methodology Error Correction Model (ECM). The result of the estimate and analysis
were the current account balance and foreign exchange reserve stationary at level with the ADF test. The
variables had relationship equilibrium for the long-term and had one-way causality. That was the foreign
exchange reserve that causesthe current account balance. For the long-term, the current account balance had
positively and not significantly to change the development of the foreign exchange reserves. From the shortterm disequilibrium relationship to the equilibrium relationship, the current account balance had negatively and
not significantly too to change the development of the foreign exchange reserves.The value of the current
account balance of Indonesia has a deficit in some periods. Itwould have a bad impact on domestic foreign
exchange reserves. To the Government, the Ministry of Trade to keep the export performance to the stability of
the current account balance surplus to increase the Indonesian economic growth.
KEYWORDS : Foreign Exchange Reserve, Current Account Balance, EC
The purchasing power parity (PPP) theory compares the average costs of goods and services between countries using exchange rates. PPPs are useful for inter-country comparisons of GDP in real terms and economic data expressed in national currencies. PPPs are calculated at the product group level by comparing consumption baskets, then aggregated to GDP levels using weights. PPP exchange rates are meant to converge with actual exchange rates over the long run, though various factors can cause short-term deviations. PPPs are useful for output and productivity comparisons, while market exchange rates are better for trade-related analyses.
The document discusses various aspects of foreign exchange rates including:
1. Exchange rates are the ratio between two currencies and are quoted regularly in publications. Major world currencies include the USD, Euro, Yen, GBP, etc.
2. Exchange rates can be quoted directly or indirectly. Direct quotes place the domestic currency first while indirect quotes place it second.
3. Spot exchange rates are determined by the interplay of demand and supply forces in the foreign exchange market. Factors like the balance of payments, inflation, interest rates, and others influence spot rates.
This document summarizes a study that examined the demand for money in Nigeria over 26 years using measures of narrow and broad money, income, interest rates, exchange rates, and stock market data. The study found that Nigeria's money demand function was stable over the period examined and that income was the most significant determinant of money demand. It also found that incorporating stock market variables improved the performance of the money demand function, as stock markets have become more important for household wealth. The study recommends policies to improve stock market activities and the use of monetary targeting to control inflation.
A research project on devaluation of currency in Pakistan. Pakistan being a developing country, its economy gets affected by the rise and fall of Pakistani currency against dollar. During the time of Prime Minister Shaukat Aziz in power dollar was stable for 60 rupee. When the government changed Pakistani currency immediately fell seven rupee against dollar. Since then Pakistani currency is falling and nowadays the value is 104 and the speculation is that it will keep on falling. The devaluation of currency has a direct impact on local Pakistan traders. Foreign trade such as eatable oil, raw materials, petroleum and electronics gets expensive. This creates problems for the traders. Pakistan imports 80 percent of petroleum for its consumption. According to the Former Finance Minister Dr. Salman Shah, Pakistan spends 13 billion dollar on imports of crude oil and eatable oil. This provides a boost for domestic demands as exports become cheaper and more competitive to foreign buyers. Higher level of exports should lead to an improvement in the current account deficit. This was important in the case of the UK who had a large current account deficit of over 3% of GDP in 2008. Higher exports and aggregate demand can lead to higher rates of economic growth. Deficit financing, economic instability and money supply are the factors that influence our independent variable.
The value of a currency is determined by supply and demand factors. If demand for a country's currency is high from travelers, governments, and investors, its value increases. However, demand decreases if a country has a weak economy, high inflation, political instability, or high national debt. These factors can lower the value of a currency. Additionally, currency values fluctuate compared to each other in foreign exchange markets based on relative demand for different currencies.
Indian economy current problems and future prospectsKulandaivelu GfK
This document provides an overview of the current state of the Indian economy and prospects for the future. It notes several paradoxes, including high fiscal deficits despite low inflation and interest rates. While the current account is in surplus and foreign reserves are high, this situation is unusual for a developing country which typically relies on capital inflows to finance domestic investment. The document compares India's economic integration and performance to China's, and argues India could experience sudden capital outflows if interest rates rise abroad. Overall it suggests the economy is in an unhealthy state and private investment may be crowded out by large government deficits.
This document discusses housing issues in Saudi Arabia. It notes that there is a shortage of affordable owner-occupied housing, especially for lower-income families. Several factors have contributed to this, including demographic changes, a lack of mortgage financing options, and slow housing construction that has not kept up with demand. The Saudi government is taking steps to address the supply shortage by increasing housing loan limits and proposing a new mortgage law to facilitate financing. Real estate developers are actively working to build new residential units, but the demand-supply gap remains large.
Relation between interest and exchange rateUtkarsh Shivam
This document summarizes a macroeconomics project on the relationship between inflation, interest rates, and exchange rates. It defines key terms like foreign exchange markets, exchange rates, and interest rate parity theory. It then discusses theories of interest rate parity, purchasing power parity, and the balance of payments. Case studies on Albania and Kenya analyze the relationship between domestic interest rates and currency exchange rates. The impact on the Indian economy and future policy suggestions are also covered.
This document discusses different types of exchange rate systems and how exchange rates are determined. It outlines fixed exchange rates where a government sets the rate, floating/flexible rates where market forces determine the rate, and managed rates where a government intervenes to influence the rate. It then provides details on how demand and supply impact exchange rate equilibrium and can cause currency appreciation or depreciation under flexible systems.
China recently devalued its currency, the yuan, against the US dollar by 1.9%, the largest single-day depreciation since 2005. This move signals China's goal of achieving a floating exchange rate for the yuan and increased internationalization of the currency. In the short-term, a weaker yuan will help Chinese exporters but hurt competitors in other Asian countries. Long-term, as China transforms to a more consumer-driven economy, manufacturers in countries like South Korea and Taiwan that export to China should benefit from the trend appreciation of the yuan. The devaluation may cause volatility for the yuan exchange rate in the near future as markets adjust to the changes.
Indian foreign exchange market & rupee exchange rateNikita Bhinde
The document discusses the Indian foreign exchange market and the rupee exchange rate. It provides an overview of the key components of the forex market including instruments like currency futures, forwards, options and swaps. It also discusses determinants that impact exchange rates like inflation, interest rates, current account deficits. The document outlines how the value of the rupee can appreciate or depreciate versus other currencies and some of the factors that have led to depreciation of the Indian rupee recently. Lastly, it provides the exchange rates of the rupee versus the US dollar, British pound, euro and Japanese yen over the last 5 days.
This paper develops an equilibrium model of the determination of exchange rates and prices of goods. Changes in relative prices due to supply or demand shifts induce changes in exchange rates and deviations from purchasing power parity. These changes may create a correlation between the exchange rate and the terms of trade, but this correlation cannot be exploited by governments to affect the terms of trade through foreign exchange market operations. The model emphasizes the role of relative price changes due to real disturbances and how these changes affect both exchange rates and the terms of trade through shifts in supply and demand. Government interventions in foreign exchange markets cannot influence exchange rates if the relationship between exchange rates and terms of trade is due to shifts in real supply and demand for domestic and foreign goods.
The money supply and inflation ppt @ bec domsBabasab Patil
1. China is experiencing high inflation which can be explained by increases in the money supply.
2. The central bank, called the Federal Reserve, controls the money supply through open market operations and by adjusting reserve requirements and interest rates.
3. When the money supply increases, either the price level rises or output increases as shown by the Quantity Theory of Money equation.
This document discusses a study examining the impact of monetary policy on the financial performance of banks in Pakistan from 2007-2011. It uses interest rates set by the State Bank of Pakistan as a measure of monetary policy. The study finds that higher interest rates, representing a tighter monetary policy, have a significant negative relationship with banks' financial performance as measured by their return on assets and return on equity. The document provides background on monetary policy, its tools of expanding or contracting the money supply, and how interest rates can affect bank risk-taking and performance. It also reviews prior literature finding that higher capitalized banks may increase risk-taking less in response to lower rates than other banks.
8 key factors that affect foreign exchange ratesannadesoza123
The exchange rate is defined as "the rate at which one country's currency may be converted into another." It may fluctuate daily with the changing market forces of supply and demand of currencies from one country to another.
A comparative study of various models in forecasting INR-USD exchange rateAMAR SHAKTI KUMAR
This research paper’s aim to comparative study of various models in forecasting INR-USD
exchange rate, forecasting exchange rate for 2017 and find the best one.
The following forecasting techniques were evaluated for Comparative study: simple moving
average, weighted moving average, Exponential Smoothing average, purchasing power parity
and international fisher effect. Using recent INR-US dollar data, the research examined the
forecasting data accuracy.
First we have tested all selected models from past data and then i found that Exponential
smoothing average method produces less error comparatively, in time line analysis. And in
fundamental approach purchasing power parity produce less error.
So I found that Exponential smoothing average method is batter from all selected models
Net External Liabilities and Economic Growth: A Case Study of pakistansanaullah noonari
This document discusses the relationship between net external liabilities and economic growth in Pakistan from 1973-2012. It finds that net external liabilities, education enrollment, exports, and gross capital formation are positively associated with GDP growth, while the relationship between debt service and growth was insignificant. The document also reviews previous literature on the impact of external debt on economic growth, discusses the variables and data used in the analysis, and presents the results of unit root tests of the time series data.
This document discusses the relationship between net external liabilities and economic growth in Pakistan from 1973-2012. It finds that net external liabilities, education enrollment, exports, and gross capital formation are positively associated with GDP growth, while the relationship between debt service and growth was insignificant. The document also reviews previous literature on the impact of external debt on economic growth, discusses the variables and data used in the analysis, and presents the results of unit root tests of the time series data.
Balance of payment adjustment through fiscal policy an obserationhemant sonawane
This document provides a history of balance of payments issues from pre-1820 to the present. It discusses several periods: pre-1820 when mercantilism dominated and countries aimed for trade surpluses; 1820-1914 when free trade increased global economic integration under the gold standard; 1914-1945 which saw deglobalization during World War I and the Great Depression; 1945-1971 when the Bretton Woods system established fixed but adjustable exchange rates; and 1971-present during the transition away from Bretton Woods to more flexible exchange rates. Throughout this history, countries and economists have debated the appropriate policy approaches to addressing balance of payments issues.
Markets towards sustainable economic development: A Study in BangladeshSudipta Saha
This document provides an overview of sustainable development and the role of financial institutions and markets in Bangladesh. It discusses how financial institutions like banks can contribute to sustainable development through green banking initiatives, investing in clean technology, and engaging in corporate social responsibility activities. It also examines some barriers that can prevent financial institutions from pursuing sustainability, such as high initial costs, regulatory restrictions, and financial crises. Overall, the document analyzes how practices involving green banking, energy efficiency, and eco-friendly operations can help drive sustainable development in the financial sector in Bangladesh.
Presentation on summer training project at hsbc investNavneet Malhi
The document summarizes a presentation on the effects of the recent global financial crisis on investment patterns of investors in Ludhiana, India. It finds that most investors' financial position remained the same or improved, and that the preferred long-term investment was savings accounts. The preferred sector was services, though some sectors like real estate were negatively impacted by the crisis. Overall, investors remained optimistic about the growth of the US and Indian economies going forward.
This document provides an abstract and introduction for a study examining the effect of China's currency manipulation on India's balance of payments from 1980-2000. The study hypothesizes that China's intervention in foreign exchange markets had a negative impact on India's balance of payments. It plans to test this hypothesis using time series data and models like the Mundell-Fleming model. The study will estimate models to analyze the impact on India's current account and capital account separately. It acknowledges some potential econometric issues like unit roots, multicollinearity, and heteroskedasticity in the data that will need to be addressed.
Financial development and economic growth in nigeriaAlexander Decker
The document discusses the relationship between financial development and economic growth in Nigeria. It analyzes previous literature on the topic which shows mixed findings on the direction of the relationship. The study aims to contribute new evidence on how financial development impacts economic growth in Nigeria using time series data and econometric modeling. Preliminary results suggest a long-run relationship between financial development indicators like bank credit and economic growth as measured by GDP. However, some variables like lending rates did not have the expected effect. The paper concludes with recommendations for policies to strengthen this relationship and foster growth.
Savings, Financial Development and Economic Growth in Egypt RevisitedSDGsPlus
This document summarizes previous research on savings behavior in developing economies and Egypt. It includes a literature review section summarizing key findings from other studies. For Egypt specifically, it discusses a 1997 study by Hussein and Mohieldin that developed a long-run equation to examine financial savings behavior. The study found that the real interest rate did not significantly impact financial savings in Egypt and showed a negative relationship, which the authors attributed to factors like money illusion, risk preferences given stability in the banking sector, implicit deposit insurance, tax benefits of bank deposits, limited investment options, and moderate inflation. The current paper aims to build on this past work by analyzing quarterly data from 1991 to 2010 to further examine the relationship between savings and interest rates
This document provides background information on a study about the effects of inflation on the profitability of commercial banks in Uganda. It discusses inflation and how it can reduce purchasing power. It also defines key terms like interest rates, lending, and consumer price index. The problem statement indicates that despite financial reforms, commercial bank performance in Uganda has remained poor due to high inflation, interest rates, and exchange rate volatility. The specific objectives are to determine the effects of exchange rates, interest rates, and consumer price index on bank profitability. The significance is that bank management can use the study to understand inflation's impacts and develop strategies to handle its effects.
The document provides a summary of the 95th issue of the financialdharma newsletter. It discusses the following key topics:
- The significance of the Urjit Patel Committee report on adopting inflation targeting in India's monetary policy framework.
- Rising income inequality globally and in India based on Gini coefficient measurements.
- Moody's warning about India's ability to absorb rising government debt if economic growth remains low and inflation high.
- Using debt funds to strengthen investment strategies by considering bond duration and interest rate outlook.
The Impact of Monetary Policy on Financial Performance: Evidence from Banking...Muhammad Arslan
The document analyzes the impact of monetary policy on the financial performance of banks in Pakistan. It specifically examines the relationship between interest rates set by the State Bank of Pakistan and two measures of bank performance: return on assets (ROA) and return on equity (ROE). The study finds that interest rates have a statistically significant negative relationship with both ROA and ROE, indicating that higher interest rates are associated with lower financial performance for banks. This supports the hypothesis that monetary policy has a negative effect on bank performance in Pakistan.
The document discusses the relationship between interest rates and gross domestic product (GDP) in Pakistan. It provides background on interest rates and GDP, reviews previous literature that finds both positive and negative relationships between the two variables, outlines the methodology used including regression analysis on annual interest rate and GDP data from 1960 to 2005, and presents the results of the regression analysis showing a statistically significant relationship between interest rates and GDP in Pakistan.
Determinants of interest rate empirical evidence from pakistanAlexander Decker
This document summarizes a research paper that analyzes the determinants of interest rates in Pakistan. It begins with background definitions of key rate indicators like KIBOR and inflation. It then states the purpose is to study the determinants of interest rates, with the hypotheses that inflation and exchange rates have a positive impact on interest rates. The literature review summarizes several past studies on factors influencing interest rates in countries like Pakistan, Austria, and Japan. These studies examined the relationship between policy rates, market rates, inflation, and economic growth.
This document provides an overview of monetary policy in Bangladesh. It defines monetary policy and discusses its objectives, which include rapid economic growth, price stability, exchange rate stability, full employment, and equal income distribution. It also outlines the tools used by Bangladesh's central bank to implement monetary policy, including reserve requirements, open market operations, and interest rate controls. The document then summarizes Bangladesh's monetary policy in 2018 and analyzes the impact of expansionary monetary policy on GDP.
An interest rate is the quantity of interest due per period as a proportion of the amount lent, deposited or borrowed. The first aim of this study is to know about the interest rates prevailing with countries and to analyze the impact of interest rate towards international currency pairs. For this purpose, the currencies of four countries have been taken and they were compared with the interest rate to know their impact. The conclusion clearly reveals that the interest rate changes has an impact towards the market in mid and long term basis with all the currencies taken for the study. Monetary policy is the mechanism by which the monetary authority of a country regulates the supply of money to ensure the price stability and general trust in the currency. The second aim of the study is to analyze the impact of monetary policy and its impact on international markets. The study is all about analyzing the volatility of Forex market in different GMT’S. The need of the study is to know about the price variations in different timings of the market when there is day shift process accordingly. This type of research design has been undertaken for analytical design since the pricing movements of bullion markets are analyzed.
Bangladesh relies heavily on external assistance to finance development projects and address its balance of payments deficits. While its external debt levels have increased over time, most indicators of debt sustainability remain within thresholds. The ratio of external debt to GDP declined after 2002 to 22.3% in 2010/11 due to strong GDP growth. The ratio of external debt service to exports stabilized below 20% after 1998/99. The ratio of debt to exports declined due to export growth and was below 150% since 2004/05. The ratio of debt to revenue fell below 250% after 2007/08, indicating Bangladesh's ability to service its debt with government revenues. However, declining grants and rising debt service payments remain concerns for long-term debt sustainability without
This document discusses macroeconomic indicators that can be used to compare emerging economies. It defines emerging economies and lists some key characteristics such as undergoing economic reforms and opening markets. The document outlines several important macroeconomic indicators that will be studied, including GDP, unemployment, inflation, interest rates, and their relationships. It presents the objectives of the study as finding countries' economic potential and comparing macroeconomic factors to identify opportunities for investment or business operations.
A causality analysis of financial deepening and performance ofAlexander Decker
This study examines the causal relationship between financial deepening and economic performance in Nigeria from 1990-2013. Secondary data on gross domestic product (GDP), broad money supply (M2), market capitalization (MAC), and credit to the private sector (CPS) was collected from the Central Bank of Nigeria and National Bureau of Statistics. Unit root tests confirmed the variables were integrated of order one, or stationary after first differencing. The study aims to test for a long-run relationship between financial deepening and economic performance in Nigeria and investigate the direction of causality between the variables. The results will help inform government policies around manipulating the money supply and improving access to credit to facilitate economic growth and development.
A causality analysis of financial deepening and performance ofAlexander Decker
This study examines the causal relationship between financial deepening and economic performance in Nigeria from 1990-2013. Secondary data on gross domestic product (GDP), broad money supply (M2), market capitalization (MAC), and credit to the private sector (CPS) was collected from the Central Bank of Nigeria and National Bureau of Statistics. Unit root tests confirmed the variables were integrated of order one, or stationary after first differencing. The study aims to test for a long-run relationship between financial deepening and economic performance in Nigeria and investigate the direction of causality between the variables. The results will help inform government policies around manipulating the money supply and improving access to credit to facilitate economic growth and development.
The document discusses the human resource management practices of Akij Group, one of the largest conglomerates in Bangladesh with over 50,000 employees, outlining their recruitment and selection process, training opportunities, compensation and benefits, and compliance practices for their various business units. It also includes an organizational chart of Akij Group and lists their 26 business units across various industries.
The document provides information about forming a private limited company in Bangladesh. It outlines the key steps which are:
1. Obtaining name clearance for the proposed company name from the Registrar of Joint Stock Companies and Firms (RJSC).
2. Registering the company by submitting documents like the memorandum and articles of association to the RJSC.
3. Filing necessary returns on an ongoing basis to the RJSC to maintain the company's registration.
4. Obtaining certified copies of documents from the RJSC to prove the company's registration.
This document reviews literature on factors that impact currency exchange rates and forecasting models. It examines how interest rates, inflation, purchasing power parity, and monetary policy can influence exchange rates between currencies like the US dollar and Bangladeshi taka. The document also provides data on historical inflation rates in the US and Bangladesh from 2014 to 2018 and forward rates for the US dollar to Bangladeshi taka from 2014 to 2019. It concludes that inflation, interest rates, and poor monetary policy have caused fluctuations in the Bangladeshi taka exchange rate and that countries should aim to stabilize exchange rates to support trade and economic growth.
The document summarizes key details from Bangladesh's 2018-2019 budget. It provides the total budget amount of 464,573 crore and charts the growth in budgets from 2012 to 2018. It outlines the sources of revenue as tax revenue, foreign grants, and non-tax revenue totaling 343,331 crore. Expenditures are outlined as development expenditures of 291,573 crore and non-development expenditures of 173,000 crore. The budget runs an overall deficit of 121,242 crore. Changes to income tax rules and VAT rates are also summarized along with critical assessments of the budget's realism from economic experts.
The document provides a marketing plan for a new natural mosquito repellent spray produced by a subsidiary of Renata Limited. The plan targets consumers with medium to high incomes who are knowledgeable and open to trying new products. It outlines the product details and composition. It also performs a SWOT and competitive analysis. The plan proposes strategies around pricing, distribution channels, advertising, and sales promotions to achieve objectives of increasing market share and sales over 2 years.
This document provides an overview of LankaBangla, an integrated financial services company in Bangladesh, and includes budgets for computer and network equipment. In 3 sentences:
LankaBangla started in 1997 as a joint venture and is now the leading provider of integrated financial services and capital market services in Bangladesh. The document includes budgets outlining the costs of equipment for 45 computers totaling over 3 million and network infrastructure totaling over 2 million, including servers, routers, switches, internet connections and other items. LankaBangla is committed to changing the lives of ordinary people through providing financial services.
Swift Electrical Supply is experiencing a decrease in overall revenue and needs to cut inventory costs. They are considering designing a new inventory system to have a more flexible delivery with smaller order quantities. The document analyzes the economic order quantity (EOQ) system and periodic review system for Swift. It determines that the EOQ or continuous review system is preferable, with an optimal order quantity of 2724 units and a safety stock of 292 units. The periodic review system would have higher total costs.
Akij Group is one of the largest conglomerates in Bangladesh, starting as a small jute trader over 50 years ago. It now has 24 businesses across diverse industries and products. It employs over 50,000 people. The group provides world class products and follows a thorough selection process for hiring, including interviews, tests, and orientation. It offers competitive compensation and benefits like salaries, bonuses, increments, and allowances. It invests in extensive training programs using various on and off the job methods to improve employee performance, morale, and promotion opportunities. Performance is regularly appraised by supervisors and the group ensures 100% compliance with all labor laws, policies, and industry standards through annual audits.
This document analyzes working capital management (WCM) ratios for several pharmaceutical companies in Bangladesh, including Square Pharmaceuticals and GlaxoSmithKline. It calculates key WCM metrics like inventory turnover, receivables period, payables period, and cash conversion cycle for each company individually and compares them to industry averages. Graphs are presented to show how the individual companies compare to overall industry trends. The analysis provides insights into how efficiently different companies are managing their working capital.
The document provides an overview of Akij Group, one of the largest conglomerates in Bangladesh. It was originally founded over 50 years ago as a small jute trading business and has since expanded to 24 large business concerns across diverse industries. It employs over 50,000 people and has received 25 national awards. The group aims to provide world-class products and services while also engaging in social welfare and sustainable development initiatives in Bangladesh.
Determinants of Bank Profitability in Bangladesh Md. Ali Ridwan
This paper intends to investigate the various bank-specific and macroeconomic forces that play a
major role in the profitability of banks in Bangladesh. The paper considers liquidity,
capitalization, size, credit risk, and inflation as forces behind bank profitability and examines to
what extent do these things affect the profitability of a bank. Data of 5 private commercial banks
during the period of 2013-2017 was used and analyzed in order to generate results.
This paper also acknowledges the fact that the study has limitations. Since it is only conducted on
5 Private Commercial Banks, the study may not represent the most accurate picture of the banking industry.
Solar water heaters use solar energy from sunlight to heat water for various purposes like residential and commercial use. They consist of solar collectors that absorb sunlight to heat a fluid, transferring the heat to an insulated storage tank. This provides hot water that can be used directly or as a supplement to electric water heaters on cloudy days. Solar water heaters save energy costs, reduce carbon emissions, and have minimal maintenance requirements making them a sustainable option for water heating.
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Performance Analysis of IPDC Finance LTD in terms of Profitability, Liquidity...Md. Ali Ridwan
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ViewShift: Hassle-free Dynamic Policy Enforcement for Every Data LakeWalaa Eldin Moustafa
Dynamic policy enforcement is becoming an increasingly important topic in today’s world where data privacy and compliance is a top priority for companies, individuals, and regulators alike. In these slides, we discuss how LinkedIn implements a powerful dynamic policy enforcement engine, called ViewShift, and integrates it within its data lake. We show the query engine architecture and how catalog implementations can automatically route table resolutions to compliance-enforcing SQL views. Such views have a set of very interesting properties: (1) They are auto-generated from declarative data annotations. (2) They respect user-level consent and preferences (3) They are context-aware, encoding a different set of transformations for different use cases (4) They are portable; while the SQL logic is only implemented in one SQL dialect, it is accessible in all engines.
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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
2. P a g e | 2
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
3. P a g e | 3
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
4. P a g e | 4
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
5. P a g e | 5
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.
8. P a g e | 8
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.
9. P a g e | 9
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.
10. P a g e | 10
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.
11. P a g e | 11
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
12. P a g e | 12
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.
13. P a g e | 13
"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.
14. P a g e | 14
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.
15. P a g e | 15
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,
16. P a g e | 16
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)
17. P a g e | 17
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
20. P a g e | 20
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$=78.10Tk on 30Dec, 2015
Ih> If , Foreign currency will appreciate roughly by 5.49%
ef=(1.0619/1.007)-1 = .0545= 5.45%
For 2016, F=S(1+ef)
=Tk 78.10(1+.0545) =82.36Taka/Dollar
21. P a g e | 21
For 2016, Ih- If=5.52%-.2.1%=3.42%, 1$=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.
22. P a g e | 22
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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