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TERM PAPER
ON
MONEY EXCHANGE
MARKET
PREPARED BY
NAME: SALEH RAFIQ CHOUDHURY
SUPERVISOR
DATE OF SUBMISSION
MARCH 28, 2015
INTRODUCTION
The markets in which participants are able to buy, sell, exchange and speculate on
currencies are known as money exchange market or foreign exchange markets.
Foreign exchange markets are made up of banks, commercial companies, central
banks, investment management firms, hedge funds, and retail forex brokers and
investors. Exchange rate is the price of one nations currency in terms of another
nations currency. So in an exchange rate there are two components which are
domestic currency and foreign currency. This term paper is written on a theme
behind which is to analyze the bid/ask spread, bod/ask fluctuations and presence of
arbitrage.
DATA COLLECTION
For completing this term paper, I have collected data from two private banks and
two money exchange dealer.
The names of the two banks are:
I have collected these data consecutively for ten days except the holidays. All the
data collected by me for completing term paper, are attached with this term paper.
LIMITATIONS
Exchange rate collection is not that easy for everyone. Normally the private banks are
not willing to pay the entire currency rate while the money exchange brokers are also
gives limited data of some common currencies.
ANALYSIS
With all the collected data, I have to analyze bid/ask spread, bid/ask fluctuations and
presence of arbitrage. At first, I have calculated the percentage of bid/ask spread and
plotted the percentage rate on a chart. Then tried to analyze the bid/ask fluctuations
and finally tried to find the presence of arbitrage.
Spread as defined represents discount in the bid rate as percentage on the ask rate.
Spread is the key indication of the liquidity of the currency. Normally, the smaller the
spread the better the liquidity.
Currency
Buy/Bid
Sale/Ask
% of Spread
US DOLLAR
77.0949
77.0949
77.045
77.0949
76.9951
76.9951
77.045
77.0949
76.9951
76.9951
78.19
78.19
78.14
78.19
78.09
78.09
78.14
78.19
78.09
78.09
1.400562732
1.400562732
1.401330944
1.400562732
1.402100141
1.402100141
1.401330944
1.400562732
1.402100141
1.402100141
Currency
Buy/Bid
Sale/Ask
% of Spread
US DOLLAR
77.1
77.1
77.1
77.1
77
77
77
76.9
76.9
76.9
79.1
79.1
79
79
79
79
79
79
79
79
2.528445006
2.528445006
2.405063291
2.405063291
2.53164557
2.53164557
2.53164557
2.658227848
2.658227848
2.658227848
Currency
Buy/Bid
Sale/Ask
% of Spread
78.9
79.2
0.378787879
02.03.2015
78.9
79.2
0.378787879
03.03.2015
78.65
78.85
0.253646164
04.03.2015
78.8
79.1
0.379266751
78.6
78.9
0.380228137
78.8
79.1
0.379266751
09.03.2015
78.8
79
0.253164557
10.03.2015
78.7
78.9
0.253485425
11.03.2015
78.7
78.9
0.253485425
12.03.2015
78.6
78.8
0.253807107
01.03.2015
02.03.2015
03.03.2015
04.03.2015
05.03.2015
08.03.2015
09.03.2015
10.03.2015
11.03.2015
12.03.2015
Standard
Chartered Bank
01.03.2015
02.03.2015
03.03.2015
04.03.2015
05.03.2015
08.03.2015
09.03.2015
10.03.2015
11.03.2015
12.03.2015
B.K.B Money
Exchange(Pvt.)
Ltd.
01.03.2015
05.03.2015
08.03.2015
US DOLLAR
SKAF Money
Exchange
Currency
Buy/Bid
Sale/Ask
% of Spread
US DOLLAR
78.1
78.5
78.2
77.9
78.3
78.5
78.3
78.5
78.8
78.5
78.4
78.8
78.5
78.3
78.5
78.8
78.6
78.8
79.2
78.8
0.382653061
0.38071066
0.382165605
0.510855683
0.25477707
0.38071066
0.381679389
0.38071066
0.505050505
0.38071066
01.03.2015
02.03.2015
03.03.2015
04.03.2015
05.03.2015
08.03.2015
09.03.2015
10.03.2015
11.03.2015
12.03.2015
From the above calculation, I can say that the percentage of spread changes every
day though the amount is very little.. So the market value of US Dollar against the
Bangladeshi taka changes every day but on a very short margin and it can be said
that the market is stable. After plotting in a chart it can be understand very easily.
3
2.5
% Of Spread
1.5
0.5
% of Spread(BRAC)
% of Spread(SCB)
% of Spread(BKB)
% of Spread(SKAF)
From the plot it is clear that in Standard Chartered Bank the bid/ask spread
percentage is high than the others. Though there are no major fluctuations in the
percentage of spread but considering the BKB money exchangers spread on dollar it
can be said that they are maintaining a very stable market for US Dollar. So the
liquidity of currency is in a better position of this money exchanger. Among the
others BRAC bank is containing a very non-fluctuate percentage of spread. There is
no major up and down in their bid/buy price and ask/sell price. And SKAF money
exchangers percentage of bid/ask spread is also on the lower side.
Brac Bank
79.5
79
78.5
78
77.5
77
1.03
2.03
3.03
4.03
5.03
8.03
9.03
10.03
11.03
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
76.5
12.03
In the above chart, it is clear that though the fluctuations are not that big but there
are fluctuations available. The highest fluctuations are shown is Standard Chartered
Bank. Their buy/bid price close to $77 and ask/sell price is more than $79.
Moreover I have tried to find out the fluctuations in British Pound bid/ask price. For
this again I have plotted a chart. Again Standard Chartered tops the chart I case of
fluctuations. Though BRAC bank have a lower spread but their fluctuation rate is
high.
British Pound Bid/Ask Fluctuations for ten days:
126
SCB
BRAC
SKAF
BKB
124
122
120
118
116
114
112
1.03
2.03
3.03
4.03
5.03
8.03
9.03
10.03
11.03
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
Sale/Ask
Buy/Bid
110
12.03
Considering the two chart it can be easily said that the currency fluctuations rate is
not very high but it occurs every day and sometimes in a single day it can fluctuate
many times. As the rate of fluctuate is not that high so it can be said that the money
market is stable.
CONCLUSION
Money exchange market is the biggest market in the world. It performs 365*7*24
basis means it is always open. Having proper knowledge, one can performs well in
this market.