Foreign Exchange

Commercial Bank Ltd

Operation

of

the

United

INTRODUCTION

Bank plays an important role in the business sectors and in the industrialization of a country.
Basically the banks take deposits from the customers against interest or profit and lend it to the
borrowers against interest or profit for a cessation period. Under these circumstances of banks
offers different interest rates or profit and other options to the customers to remit and deposit their
money. These options are very common among the entire bank, but only the customer services
and other facilities vary from bank to bank. More than 90% of financial assets of Bangladesh are
owned by different category of bank, which is also largely contributing to the growth in the
countys GDP and employment In our country there is Govt. Banks, Semi-Govt. Banks, and
Private sector have conventional and Islamic bank of Bangladesh and also it is the third
generation private bank in Bangladesh It started its crucial moment/juncture when Bangladesh
economy was undergoing through massive economy reforms and pursuing unilateral and
multilateral trade liberalization with the backdrop of the World Bank made international monitory
fund recommendations. This UCBL with its fifty one branches in strategize locations of the
country is providing the best quality services to their customers and clients.
ORIGIN OF THE REPORT
Since practical orientation is an integral part of the BBA degree requirement, I was deputed by
the School of Business (SB), SEU to UCBL to take real life exposure of the activities of the Bank.
During my internship at UCBL I have come across with different functions of the Bank. From them
I have decided to work in the field of general banking, foreign exchange and credit.
This term paper has been originated as the course requirement of the BBA program and I also
add some of my own view point. I hope the report will give a clear idea about the activities,
Foreign Exchange operation of the United Commercial Bank Ltd.
OBJECTIVES OF THE REPORT
The objective of this program and the report can be divided into two types, such as broad
objectives and specific objectives.
Broad Objectives: The main objective analysis financial performance of bank and foreign
exchange trade between import and export customers provide service by the bank and analysis
of bank risk content of international trade and exchange.

Specific objectives:
To show banks overview and its product & service.

To analyze income statement and balance sheet estimate the NIM, NPM, EPS, ROA & ROE

Ratio.
To analyze this ratio for knowing its growth & position.
To analyze the result of this ratio for knowing banks performance better or worse.
To analyze DuPont position for knowing overall return on equity.
To analyze the between import and export risk activates.
To know the attitudes, perceptions and concerns of Bangladeshi bank towards FXRM.
To know foreign exchange risk management policy- making and control process adopted by

the banks which use derivatives, in managing foreign exchange exposure.

To identify the risk involved in foreign exchange proceedings.
To customer suffering financial loss as result of the default of another customers sale contact.
The risks involved in repatriation of export proceedings.
To know the regulation and deregulation regarding Foreign Exchange in Bangladesh.
To know the banks foreign exchange department service.
METHODOLOGY OF THE STUDY

In preparing this report, both primary and secondary sources of information have been used.

For collecting primary data,

Discussion with the respective banks officers
Sharing practical knowledge of officials
direct communication with the clients
exposure on different desk of the bank
File study etc.

The secondary sources were

Annual Report of UCBL & Website of UCB Limited

periodicals published by the Bangladesh Bank

Relevant bank documents, papers, client/ customer and bank Journals

Different corporate files

Different Financial book

LIMITATIONS

To make a report various aspects and experiences are needed. But I have faced some barriers
for making a complete and perfect report. These barriers or limitations, which hinder my work, are
as follows:

All the concerned personnel of the bank have not been interviewed.

Financial performance is not shown in well arranged within short time.

Lack of experience and knowledge of foreign exchange.

Desk work is very complicated within short time.

Inadequacy and lack of availability of required Current data.

Financial statement of 2011 as on June 30 is unaudited.

The documentation part of the Letter of Credit with regard to export and import is quite
complicated and huge formalities.

I was placed for only around 3 months of time & working like a regular employee hindered the
opportunity to put the effort for the study. The time span was not sufficient enough to learn all the
activities of the organization properly. Therefore, it was very difficult to carry out the whole
analysis
CHAPTER-2

Conceptual Issues
ORGANIZATION OVERVIWE:

United Commercial Bank Limited (UCBL) is a Bangladesh based financial institution that
provides banking services. The services include personal and business banking, loans, credit
cards, online banking and money transfer services. The bank primarily operates in Bangladesh,
where it is headquartered in Dhaka.
With its firm commitment to the economic development of the country, the Bank has already
made a distinct mark in the realm of Private Sector Banking through personalized service,
innovative practices, dynamic approach and efficient Management. The Bank, aiming to play a
leading role in the economic activities of the country, is firmly engaged in the development of
trade, commerce and industry thorough a creative credit policy.
History of UCBL

United Commercial Bank Limited incorporated on 26 June 1983 as a public company with limited
liability under the Companies Act 1993. The bank obtained permission to commence business
with effect from 26 June 1983 and started banking operations on 29 June 1983 with an
authorized capital of Tk. 100 million divided into 1 million ordinary shares of Tk. 100 each.
Management

The Bank has in its Management a combination of highly skilled and eminent bankers of the
country of varied experience and expertise successfully led by Mr. M. Shahjahan Bhuiyan, a
dynamic banker, as its Managing Director and well educated young, energetic and dedicated
officers working with missionary zeal for the growth and progress of the institution
Vision

United Commercial Bank Limited wants to be the market leader in the local banks in Bangladesh.
Their target is to be the highest profitable bank in local banking sector.
Mission

To provide quality services to customers

To set high standards of integrity
To make quality investment
To ensure sustainable growth in business
To ensure maximization of Shareholders wealth

To ensure human resource development to meet the challenges of the time

Strategies

To strive for customers best satisfaction & earn their confidence

To manage & operate the Bank in the most effective manner

To identify customers needs & monitor their perception towards meeting those requirements

To review & updates policies, procedures & practices to enhance the ability to extend better

services to the customers

To train & develop all employees & provide them adequate resources so that the customers

needs are reasonably addressed

To promote organizational efficiency by communicating company plans, polices &

procedures openly to the employees in a timely fashion

To cultivate a congenial working environment
To diversify portfolio both the retail & wholesale markets
Motto

Values of the UCBL

Put customer first
Emphasize on professional ethics.
Maintain quality at all levels
Branch information of UCBL

Year

2007

2008

2009

2010

2011

2012

No. of Branches

80

80

84

84

107

110

Special Features of the UCBL

It has been performing commercial banking activity and striving to introduce dynamic Banking
functions.
It is the pioneer in introducing and launching different customer friendly deposit schemes to tap the
savings of the people for canalizing the same to the productive sectors of the economy.

For uplifting the standard of living of the limited income group of the population the Bank has
introduced Consumer Credit Schemes by providing financial assistance in the form of loan to the
consumers for procuring household durables, which have had encouraging responses.
The Bank is committed to continuous research and development so as to keep pace with modern
technology.
The operations of the Bank are fully computerized so as to ensure quick, prompt flawless and
services to the customers.
The Bank has introduced camera monitor system (CCTV) to strengthen the security services
inside the Bank premises.

Rating

United Commercial Bank Limited was rated by Credit Rating and Information Services Limited
(CRISL). In their report on April 2009, they rated the Bank as AA- for long term and ST-2 for short
term. The gradation in long term rating has been done in consideration of its good capital
adequacy, appropriate asset quality, increased non funded business and sound liquidity position.
The short term rating indicates high certainty with regard to the obligators capacity to meet its
financial commitments.
BOARD OF DIRECTORS:

Chairman
Mr. Aktaruzzaman Babu
Vice-Chairman
Mr Kazi Enamul Hoque
Chairman, EC
Hajee Yunus Ahmed
Chairman, Audit Committee
Mr.Md. Jahangir Alam Khan
Managing Director
Mr. M. Shahjahan Bhuiyan
CHAPTER-3
Database
UCBL Remittance
UCBL is authorized to deal in foreign exchange business. As an authorized dealer, a bank must
provide some services to the clients regarding foreign exchange and this department provides
these services. includes all sale and purchase of foreign currencies on account of Import, Export,
Travel and other purposes. However, specifically foreign remittance means sale & purchase of
foreign currencies for the purposes other than export and import.
Remittance Procedures:
The foreign remittances are affected either through the respective banks foreign branches or
correspondents. All foreign remittance transactions are grouped into two broad categories.
There are two types of remittance:
Inward Remittance;
Remittances of foreign currency being received in the country from abroad are called Inward
Foreign Remittance. It covers purchase of foreign currency in the form of Foreign T.T, D.D and

bills, T.C etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign
exchange is to be reported to Exchange Control Department of Bangladesh Bank on Form-C.
Outward Remittance:
Foreign currency being made out abroad may be termed as Foreign Outward Remittance. That
means, remittance in foreign currency that goes out abroad is called Foreign Outward
Remittance. It covers sales of foreign currency through issuing foreign T.T, Drafts, Travelers
Check etc. as well as sell of foreign exchange under L/C and against import bills retired.
Financial ratio:
Financial ratios are useful indicators of a firms performance and financial situation. Financial
ratios can be used to analyze trends and to compare the firms financials to those of other
firms. Ratio analysis is the calculation and comparison of ratios which are derived from the
information in a companys financial statements. Financial ratios are usually expressed as a
percent or as times per period. Ratio analysis is a widely used tool of financial analysis. It is
defined as the systematic use of ratio to interpret the financial statements so that the strength
and weaknesses of a firm as well as its historical performance and current financial condition can
be determined
Explanation of Balance sheet & income statement
Balance sheet is a list of the accounts having debit balance or credit balance in the ledger. On
one side it shows the accounts that have a debit balance and on the other side the accounts that
have a credit balance. The purpose of a balance sheet is to show a true and fair financial position
of a business at a particular date. Every business prepares a balance sheet at the end of the
account year. A balance sheet may be defined as:
1.
It is a statement of assets, liabilities and owners equity on a particular date.
2.
It is a statement of what a business concern owns and what it owes on a particular date. What
is owns are called assets and what it owes are called liabilities.
1.
It is a statement which discloses total assets, total liabilities and total capital of a concern on a
particular date.
2.
It is a statement where all the ledger account balances which remain open after the preparation
of trading and profit and loss account, find place.
Balance sheet is so called because it is prepared with the closing balance of ledger accounts at
the end of the year. It has two sides assets side or left hand side and liabilities side or right
hand side. The accounts have a debit balance are shown on the asset side and those have a
credit balance are shown on the liabilities side and the total of the two sides will agree.
Contents of Balance Sheet
Assets:

Assets mean all the things and properties under the ownership of the business i.e. building, plant,
furniture, machinery, stock, cash etc. Assets also include anything against which money or
service will be received i.e. creditors accrued income, prepaid expenses etc.
Broadly speaking Assets represents resources which are of some value to the firm. They have
been acquired at a specific monetary value by the firm for the conduct of its operations. Assets
are classified as follows under the companies act:
Classification of Assets:
Assets may be classified as follows:
Real Assets:
Assets which have some market value are called real assets, e.g. building, machinery, stock,
debtors, cash, goodwill, etc.
Fixed Assets:
Assets which have long life and which are bought for use for a long period of time are called
fixed assets. These are not bought for selling purposes, e.g. land, building, plant, machinery,
furniture etc. Fixed assets are again sub-divided into two:
1.
Tangible Assets: Assets which have physical existence and which can be seen, touched and
felt are called tangible assets, e.g. building, plant, machinery, furniture etc.
2.
Intangible Assets: Assets which have no physical existence and which cannot be seen,
touched or felt are called intangible assets, e.g. goodwill, patent right, trade mark etc.
Current Assets:
Assets which are short-lived and which can be converted into cash quickly to meet short term
liabilities are called current assets, e.g. stock debtors, cash etc. Such assets change their form
repeatedly and so, they are also known as circulating or floating assets. For example, on
purchase of goods cash is converted into stock and on sale of goods, stock is converted into
debtors, on collection from debtors, debtors take the form of cash etc.
Out of current assets those which can be converted into cash very quickly or which are already in
the form of cash are called liquid or quick assets e.g. debtors, cash in hand, cash at bank etc.
Investments:
These are financial securities owned by the firm. Some investments represent long-term
commitment of funds. Other Investments are short-term in nature and may rightly be classified
under current assets for managerial purposes.
Chapter-4
Brief Overview of the Topics & Findings of the study
Foreign Exchange markets

UNITED COMMERCIAL BANK Limited serve as financial intermediaries in the foreign exchange
market currency convert by the selling and buying or import or export currencies to accommodate
customers. The speculate on foreign exchange currency movement by taking long positions in
some currencies and short positions in others and provide forward contact to customers, options
to customers. The banking engages in foreign security transactions for their customers. The
Exporters exchange their customers based by allowing customers to pay in their local currency
and the importers have the upper hand when they take the responsibility to pay a foreign
suppliers in local currency and building hedging cost into pricing. Diversity your international
suppliers base reduces the risks associated with doing business with a limited number of
vendors, in a limited numbers of regions.
Mark to Market
This is a process through which the treasury back-office values all outstanding positions at the
current market rate to determine the current market value of these. This exercise also provides
the profitability of the outstanding contracts. The treasury back office gathers the market rates
from an independent source i.e. other than dealers of the same organization which is required to
avoid any conflict of interest.
Valuations
The process of revaluing all positions at a pre-specified interval is known as valuation. Though
this exercise, an organization determines that if they are to liquidate all the positions at a given
time, at what profit or loss they would be able to do so. This function is carried out by the treasury
back-office by gathering revaluation rates. Ideally, the treasury back-office should gather such
rates from sources other than from the dealers of the same organization to avoid any conflict of
interest. Dealers are required to have their own P&L estimate which must be tallied with the ones
provided by the treasury back-office. Any unacceptable difference between these two must be
reconciled to an acceptable level.
Centralized foreign Exchange and money market activities

A financial organizations balance sheet is formed from its core activities. However, as perfection
in the balance sheet is almost impossible, organizations require access to the wholesale market
to plug in gaps and mismatches though, wholesale activities are primarily for managing gaps and
mismatches, this is also done for proprietary trading and arbitrage purposes. As the two types of
wholesale activities i.e. foreign exchange and money market are heavily interdependent, these
are required to be housed in the same area. This means that an organizations foreign exchange
and money market activities are to be unified in the same department for efficiency.
Market Management Units

Review policy at least annually and update as required

Independently identify all relevant market risk factors for each risk taking unit
Develop proposals for the independent market risk limits/ triggers, in conjunction with the risk-

taking units.
Ensure that limits/ triggers are appropriately established
Independently monitor compliance with established market risk limits/ triggers.
Ensure ongoing applicability of the market risk limits/ triggers formally review framework at

least annually.
If applicable, review and approve limit frameworks, as well as limit change requirements.
Review and approve any temporary limit requirements.
Recommend corrective actions for any limit excesses.

Maintain documentation of limit breaches, including corrective action and resolution date.
Foreign exchange Risk management:
Foreign exchange risk is defined as the potential change in profit/loss due to change in market
prices. Todays financial institutions engage in activities starting from imports, exports and
remittances involving basic foreign exchange and money market to complex structured products.
Within the Bank, Treasury department is vested with the responsibility to measure and minimize
the risk associated with banks assets and liabilities.
All treasury functions are clearly demarcated between treasury front office and back office. The
front office is involved only in dealing activities and the back office is responsible for all related
support and monitoring functions. Treasury front and back office personnel are guided as per
Bangladesh Bank core risk management and their job description. They are barred from
performing each others job. As mentioned in the previous section, Treasury Front Office and
Treasury Back Offices have separate and independent reporting lines to ensure segregation of
duties and accountability but also helps minimize the risk of compromise.
Branch Foreign Exchange Transactions

These activities revolve round the performance of the following functions:

Export and import financing

Purchase and sale of foreign exchange currencies

Documentary credit transactions and collections

Credit Insurance

Ancillary Functions in foreign exchange in foreign exchange department

Receipt foreign remittance for customers account

Credit and collections.

Value at risk

Value at Risk, commonly referred to by its acronym VAR, is a statistical measure of the worst
probable loss on a position or portfolio of positions that can be expected over a specified period
of time to a given level of confidence. The calculation of VAR requires a number of inputs:
Market value of the position
Daily volatility of the currencies
Holding period
Level of confidence
One popular approach to assessing transaction exposure is the Value-At-Risk (VAR) technique.
The VAR methodology can be employed to assess the maximum likely loss on the value of the
MNCs net cash flows denominated in one or more foreign currencies for a given time period. The
desired time period can vary from as short as 1-day to as long as 1-week or 1-month (or even
longer). The estimates of the maximum loss can then be used to assess if hedging is desirable.
Value at risk , Maximum one day loss = E(et) (1.65 * i or p)
where ,
1. The expected percentage change in the currencys value for the relevant period = E(et)
2. The Z-score corresponding to the desired confidence level used (i.e., 95%, 97.5 %,) in this
case at 95% = 1.65
3. The standard deviation of the percentage change in the currencys or portfolio of currencies
value over previous period = i or p
Overall, a portfolio of currencies whose values are highly unpredictable via the U.S. dollar (i.e.,
the standard deviations in percentages changes in the dollar exchange rates are high) will have a
high level of transaction risk.
Business trade of import and export
Business related activities as import and export exchange rate, currencies, timing

delay

payment, credit instruments and payment of foreign contact L/C and documentary interest rate of
bank.

The quality of The Foreign Exchange Department service of United Commercial Bank

Limited.
Table:11 Foreign exchange Department service
Result

Frequency

Percentage

Excellent

30

46.2%

satisfaction

20

30.8%

Moderate

10

15.4%

Dissatisfaction

7.7%

65

100

Analysis

Here I find that among 65 (100%) clients 30 (46%) are very much satisfied with the purchase and
export and import department of UCBL Bank Ltd where as only 5(7.7%) is very dissatisfied with
the performances. But average percent is good. Here we can see that 5 clients are dissatisfied.
The reason that he was dissatisfied was because he wanted more time to pay his installments
and due outstanding balance. But UCBL did not allow this.
Export and Import business :

UCB achieve a significant growth in Export and import business. Its growth rate increase day by
day. The growth of Export and Import business is one of the key attributing towards the overall
bank profitability.
Table: Export Businesses
year

2008

2009

2010

2011

2012

Export Business

50,712

38,519

36,500

27,230

20,803

Interpretation:

We can see that Export business increase every year in a satisfactory way. For this reason its
Expot business growth rate increases every year. Only 2008 export business decrease than
2009. But it recover in 2012.
Import Table:
year

2008

2009

2010

2011

2012

Import Business

86,667

58,857

60,009

60,329

39,863

Table: Import Businesses

2012

2011

2010

2009

Interpretation:
We can see that Import business fluctuated every year. But in 2010its highly increase. For this
reason its growth rate also increases.
Chapter five
Conclusion & Recommendation
Recommendation

2008

The bank should be considered on the foreign exchange risk recommendations are made which
are benefit United Commercial Bank limited and customers.
1.
Foreign Exchange rate which are factors business related imports and exports, currencies,
payments of timing, adverse rate movement have on your profitability. Also should be identify the
product and managing the buy or sell your currency in the spot market, foreign currency.
2.
Locks into fixed rates and use flexible products.
3.
Should understanding the exposure, understanding the products, development of strategy,
implementation of risk management.
4.
Key sensitivities to and interest rate and/or FX positions and Capital treatment of market risk
under Basel II.
5.
Setting and monitoring transaction and portfolio limits, assets liability management limits and
regulatory requirement.

The others banking sector should be improve as list the below points
United Commercial Bank limited should increase their interest on the document retirement then

their import business can be increase. Their Local export and import interest is 16%. If they
decrease interest on 12-14% then their import business can be increase.
If United Commercial Bank limited increases number of employee they can provide more

satisfactory service to the customers.

United Commercial Bank ltd should increase the number of PCs with updated hardware and

software.
To create better client the bank should increase the amount of consumer loans in a short-term
basis.
Conclusions
UCBL financial performance & position is better every year. Its growth rate increase day by day. We
can see that compare its performance from previous year to current year. And United Commercial
Bank limited are doing business, its successfully, their well performance in foreign exchange, foreign
exchange risk has been able to reduce and low risk performance better than other banks. The more
effectively banks foreign exchange business, the more likely they will more productive and business
transaction.
The Foreign exchange on term paper of comes from diverse areas as spot transaction forward rate,
currency swaps exchange rate movement in profit and loss, protection against exchange rates
fluctuation in foreign exchange rate. Risk Management underscores the fact that the survival of an
organization depends heavily on its capabilities to anticipate and prepare for the change rather than
just waiting for the change and react to it. The objectives of risk management is not to prohibit or
prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, clear
purpose and understanding so that it can be measure and mitigated. It also prevents an institution
from suffering unacceptable loss causing an institution to fail or materially damage its competitive
position

To the extent the bank can take risk more consciously, anticipates adverse change and hedges.
Accordingly, it becomes a source of competitive advantage , as its can offer its products at a better
price than its compositions .What can be measured can mitigation is more important than capital
allocation against inadequate risk management .Basel proposal provides proper starting point and
systems attuned to risk management practices

The effectiveness of risk management in banks depends on efficient management system,

computerization and net working of the branch activities.
Bibliography
Books:
Financial Management
Financial Markets and institution
International Financial Management
Reports:
Annual Report of United Commercial Bank Ltd. (2010, 2009, 2008, 2007)
Data from published reports of Bangladesh Bank
Core Risk management in banking
Website:
Website of United commercial bank ltd Bank Limited
Website of Bangladesh Bank Limited
Others:
Different Books, Journals, Periodicals, Lecture note etc.