Internship Full Report Date-18.05.2015 Revise PDF

Foreign Exchange Management Of First Security Islami Bank
CHAPTER ONE
INTRODUCTION
1.1 Introduction:
When someone mentions Foreign Exchange (Forex) market, the usual image that immediately
comes to mind is a person waiting behind a counter while a clerk just behind the parting glass
counts and changes your local currency into US Dollars. At some point either when travelling or
making an overseas purchase, most people would have in some way participated in the FX
market. However, it is more than currency conversion. Increasingly many are now turning to the
FX market for the purposes of speculation or dealing at prices formerly only available to
financial institutions. So what is Foreign Exchange all about? As defined in The Economist's
Guide to Financial Markets, foreign exchange, more popularly referred to as "forex" is a
worldwide decentralized over-the-counter financial market for the trading of currencies, wherein
financial centers around the globe serves as anchors of trading between a wide range of different
types of buyers and sellers 24 hours a day, five days a week (Villamar, 2011).
Some countries governments, instead of floating, fix their exchange rate, at least for periods
of time, which means that the governments central bank is an active trader in the foreign
exchange market. To do so, the central bank buys or sells foreign currency, depending on which
is necessary to peg the currency at a fixed exchange rate with the chosen foreign currency. An
increase in foreign exchange reserves will add to the
INFLATION
MONEY SUPPLY,
which could lead to
if it is not offset by the monetary authorities via what are called sterilization
operations. Sterilization by the central bank means responding to increases in reserves so as to

leave the total money supply unchanged. A common way to accomplish it is by selling BONDS on
the open market; a less common way is to increase the reserve requirements placed on
commercial banks. Still other countries follow some regime intermediate between pure fixing
and pure floating (examples include bands or target zones, basket pegs, crawling pegs, and
adjustable pegs).
Many central banks practice managed floating, whereby they intervene in the foreign exchange
market by leaning against the wind. To do so, a central bank sells foreign exchange when the
exchange rate is going up, thereby dampening its rise, and buys when it is going down. The
motive is to reduce the variability in the exchange rate. Private speculators may do the same

thing: such stabilizing speculationbuying low with the plan of selling highis profitable if
the speculators correctly anticipate the direction of future exchange rates (Frankel,2004).Foreign
Exchange Market allows currencies to be exchanged to facilitate international trade and financial
transactions. Evolution of the market in Bangladesh is closely linked with the exchange rate
regime of the country. It had virtually no foreign exchange market up to 1993.
BANK,
BANGLADESH
as agent of the government, was the sole purveyor of foreign currency among users. It
tried to equilibrate the demand for and supply of foreign exchange at an officially determined
exchange rate, which, however, ceased to exist with introduction of current account
convertibility. Immediately after liberation, the Bangladesh currency taka was pegged with
pound sterling but was brought at par with the Indian rupee. Within a short time, the value of
taka experienced a rapid decline against foreign currencies and in May 1975, it was substantially
devalued. In 1976, Bangladesh adopted a regime of managed float, which continued up to
August 1979, when a currency-weighted basket method of exchange rate was introduced. The
exchange rate management policy was again replaced in 1983 by the trade-weighted basket
method and US the dollar was chosen as intervention currency.
By this time a secondary exchange market (SEM) was allowed to grow parallel to the official
exchange rate. This gave rise to a kerb market. At present, the system of exchange rate
management in Bangladesh is to monitor the movement of the exchange rate of taka against a
basket of currencies through a mechanism of Real Effective Exchange Rate (REER) intended to
be kept close to the equilibrium rate. The players in the foreign exchange market of Bangladesh
are the Bangladesh Bank, authorized dealers, and customers.The Bangladesh Bank is empowered
by the Foreign Exchange Regulation Act of 1947 to regulate the foreign exchange regime. It,
however, does not operate directly and instead, regularly watches activities in the market and
intervenes, if necessary, through commercial banks. From time to time it issues guidelines for
market participants in the light of the countrys
RESERVE
MONETARY POLICY
stance,
FOREIGN EXCHANGE
position, BALANCE OF PAYMENTS, and overall macro-economic situation. Guidelines are
issued through a regularly updated Exchange Control Manual published by the Bangladesh
Bank.
The authorized dealers are the only resident entities in the foreign exchange market to transact
and hold foreign exchange both at home and abroad. Bangladesh Bank issues licenses of

authorized dealership in foreign currencies only to scheduled banks. The amount of foreign
exchange holdings by the authorized dealers are subject to open position limits prescribed by
Bangladesh Bank, which itself purchases and sells dollars from and to the dealers on spot basis.
In addition to authorized dealers, there are registered moneychangers to buy foreign currencies
from tourists and sell them to outgoing Bangladeshi travelers as per entitlement. Their excess
holdings beyond the permitted balance are required to be retained with authorized dealers. Some
service institutions like hotels and shops have also obtained limited money changing licenses to
accept foreign currencies the foreign tourists, but those are to be sold to authorized dealers.
Transactions by customers take place mainly to satisfy customer demand for individual needs
and to facilitate export, import, and remittances.
Since May, 2003 with the floating of BDT, foreign exchange market of Bangladesh entered into
a new phase with deregulated characteristics. In their dealings for the first time, market players
were free from government or Bangladesh Bank intervention. Although, there had been a fear of
adverse consequences of floating, the market responded rationally to the change in foreign
exchange dealing system. It was observed that the value of one dollar increased by around Tk
1.00 to Tk 61.30 in the market amid a buying pressure caused by the speculator. However, this
situation might be due to the closure of the most of the money market around the world. It was
recorded that Bangladeshi taka gained in first interface with international market in Floating
Exchange Rate (FER) regime. US dollar was traded between Tk 58.55 and Tk 58.63 on next day
after floating as compared to Tk 58.55 and Tk 58.70 on the previous day. Around US $22 million
was transacted in the market in one day without any abnormal market behavior. In the secondary
market, the rate of dollar varied between Tk 60.00 and Tk 61.30 during the week as compared to
the range of Tk 59.80 to Tk 60.35 in the preceding week.
From the trend, it was revealed that Bangladesh taka maintained its strength against US dollar
throughout the first week after the float, although the exchange rate of dollar showed somewhat
upward bias. The strong supply position, particularly, adequate supply from the authorized dealer
reasonably offset the strong demand for dollar. However, in the informal market, as before,
dollar was traded a bit higher compared to the inter-bank market. It may be mentioned that
Bangladesh Bank had taken necessary cautionary steps to avert possible erratic behavior of the
market. (Bangladesh Bank,2012)

The foreign exchange market experienced some occasional pressure due mainly to seasonal
pattern in the flow of imports and exports and the speculative factors. The FY 2005 and FY 2006
the countrys foreign exchange market showed some substantial instability. The highest volatility
of exchange rate was observed in March 2006. In the interbank market, the taka/US$ exchange
rate reached its peak at 71.75 on 21 March 2006. From the overall pattern of transactions, it was
found that in these two fiscal year BDT rapidly lost its value against US $ and average TK/$ rate
stood at 61.39 and 67.08 respectively. However, taka further lost its value in FY 2007 and stood
at 69.03 reflecting more than 17 percent depreciation from FY 2004. To ease the pressure
Bangladesh Bank intervened in the market through selling US$ in the interbank market. In
addition Bangladesh Bank approved the banks limited excess withdrawal from their foreign
exchange clearing account and made some relaxation on restrictions forward and SWAP
transactions. During FY 2008 and 2009 taka fairly appreciated against US$ and amidst some
fluctuation stood at 68.80 on average in FY 2009 due mainly to sufficient inflow of remittances
and export receipts and the trend is continuing.
To prevent further falling of the value of US$ Bangladesh Bank purchase US$ 499.2 million
(net) in FY 2009. The scope of foreign exchange market has been further widened with the
allowing of the ADs for hedging of the price risk of the commodities of their customers through
standard exchange traded future/options and over the counter derivatives on commodities with
the prior permission of Bangladesh Bank. The volume of interbank transaction in the countrys
foreign exchange market including spot, forward and swap also increased substantially during
FY 2009 which stood at US$ 4.4 billion which is more than 25 percent higher than in the
preceding year. This reflects that the market is rapidly gaining maturity and the dependency of
the banks on Bangladesh Bank is gradually reducing. (Khan and Sarkar, 2012).
In terms of FSIBL (first security islami bank), they are committed to extend high quality services
to its clients through different financial products and profitable utilization of found by
undertaking various lending operation including financial trade, consumer finance, commerce
and industry etc. In conducting lending operations FSIBL always bears in mind the essence of
their effectives securities management. It is also dedicated that purpose in proper identification
and management of foreign exchange may result in a large quantum of bank advances turning
into non-performing. FSIBL calls attention to the need of an effective foreign exchange

management process has prepared the policy guidelines for foreign exchange and securities
management. The policy will be reviewed board of director of the bank. The policy must be
strictly followed by all concerned officials and any deviation from the risk management policies
to be clearly identified and justified for approval to be provided. (FSIBL, 2012).
1.2 Aims and Objectives:

The Aims of this report are to analyze the foreign exchange management of the First Security
Islami Bank Limited. This report is also analyzing the Import and Export procedures in terms of
our country. This also concentrated on the foreign remittances and GDP growth. This study may
be helpful to first security islami bank for increasing the customer satisfaction. This study is to
provide an overview of internship program and fulfill the internship requirements.
Objectives: The specific objectives of this report are:1. To analyze how foreign exchange impact on our economy.
2. To achieve the practical knowledge about the foreign exchange
operation.
3. To know the views of import and export procedures.
4. To analyze the interrelation between Remittance and export-import.
5. To identify the risk involved in foreign exchange business.
1.3 Rational of the Study:

With the rapid growing competition (due to free market economy) among nationalized, foreign
and private commercial banks as to how the banks operates its banking and how customer
service can be made more attractive, the expectations of the customers have immensely
increased. In the modern world no country is self-sufficient; one country is to depend on other
countries and from this point of view there raises the question of foreign trade and foreign
currency transactions. Bank is related to foreign exchange business or foreign trade. That is, the
international trade involves foreign exchange transactions particularly for receipt and payment
against export and import of goods and services from one country to another. With every
growing business world knowledge about the Foreign Exchange is mandatory. Without foreign
exchange transactions we cannot think of foreign trade. Of course various rules and regulations
are to be followed in connection with the foreign trade and foreign exchange transactions. Letter
of credit is the key player in the foreign exchange business. With the globalization of economies,
international trade has become quite competitive. Timely payment for exports and quicker
delivery of goods is, therefore, a pre-requisite for successful international trade operations. Many
developed and developing countries works with foreign trade. They develop various rules and
regulations for Foreign exchange operation. This report will be helpful to know about the foreign
exchange procedures of different countries including Bangladesh. This report will also be helpful
for First security islami bank. By this report, they can be known about their strength and
weakness in foreign trading system. This is helpful for me to apply the theoretical knowledge in
the practical field. By this report, I am able to know, how the Bangladesh Bank Clearing House
work, how to sanction the loan and overall services of the Bank. I think it is very important for
all students to increase their vacuum with practical and theoretical vacuum as well.
CHAPTER TWO
LITERATURE REVIEW
2. Literature Review:
The following studies have been conducted on the subject:
According to The Economist, foreign exchange market is arguably the world's largest market
place. It has an average daily turnover of US$1.9 trillion, with some other sources such as GO
Markets Introduction to Foreign Exchange estimating the market to have an average daily
turnover in excess of US$4 trillion. The Bank for International Settlements says that average
daily turnover in global foreign exchange markets is estimated at $3.98 trillion as of April 2010,
which is a growth of more or less 20% over the $3.21 trillion daily volume in the same month
back in 2007. It has increased day by day. He mentioned that Bottom-line foreign exchange has a
huge turnover. He mentioned also some sort of advantages. One of the prime advantages to
trading foreign exchange is the sheer volume of geographically-dispersed market participants.
This in turn creates liquidity which cannot be matched by any regulated exchange-traded product
or instrument. According to a Wikipedia entry, this liquidity unique to foreign exchange markets
along with other characteristics is the reason why it has been referred as the closest ideal of
perfect competition. (Villamar, 2011).
The foreign exchange market facilitates international trade and investment and is central to the
global financial system. He said about the Market participants, both public and private,
commonly think of the foreign exchange market as highly liquid at all times. This column
challenges this view by documenting significant declines in liquidity during the recent financial
crisis. With an estimated average daily trading volume of $4 trillion, the foreign exchange
(Forex) market is by far the worlds largest market (Bank for International Settlements 2010).
This is only happened due to the foreign exchange market size, market participants commonly
regard foreign exchange as highly liquid at all times liquid in the sense that you can buy or sell
very large sums quickly and without turning the price against yourself by much. In a recent study
we challenge this view by documenting significant declines in Forex liquidity during the 20072009 financial crisis. Moreover, Forex liquidity risk impairs investors' international

diversification and affects the returns of popular Forex trading strategies such as carry trades.
(Mancini et al. 2012).
Large-scale forex intervention in emerging market economies (EMEs) aimed at resisting
currency appreciation has major implications for the composition of banking system balance
sheets. The domestic monetary consequences depend on the nature of central bank liabilities that
are the counterpart of forex reserves. Even if the immediate change in bank reserves due to FX
intervention is offset by the sale of securities, bank lending may still be stimulated, running
counter to the aims of the monetary authority. In this paper, we empirically investigate the
impact of banks' holdings of liquid government securities, generated by such intervention, on
bank credit in a panel of EMEs. We find that, for well capitalized banking systems, holdings of
government and central bank paper over time lead to an expansion in their credit to the private
sector. This result is confirmed at both country and bank level. The balance sheet effects of
large-scale FX intervention therefore require close attention. (Gadanecz et al. 2014).
The foreign exchange market is a form of exchange for the global decentralized trading of
international currencies. Financial centers around the world function as anchors of trading
between wide ranges of different types of buyers sellers around the clock, with the exception of
weekends. The foreign exchange market assists international trade and investment by enabling
currency conversation. For example, it permits a business in the United States to import goods
from the European Union member states especially Euro zone members and pay Euros, even
though its income is in USD. It also supports direct speculation in the value of currencies, and
the carry trade, speculation based on the interest rate differential between two currencies.
(Charles, 2004).
The foreign exchange market, in which traders are able to buy, sell, exchange and speculate on
currencies, is one of the world's largest and most actively traded financial markets," with trading
averaging $5.3 trillion a day (recently published). And six of the biggest banks in that market just
settled charges of manipulating it, paying a total of about $4.3 billion to a bunch of regulatory
agencies, with a bunch more regulators (and Barclays!) still to come. So that seems like a big
deal. Bigger than Libor, even, though still a speck next to the Everest that is Bank of America's
pile of mortgage settlements. He guesses me could ask, well, OK, but how much money did
10

those banks make manipulating that $5.3 trillion foreign exchange market? He doesn't know! No
one seems to care. The U.K. Financial Conduct Authority says "that it is not practicable to
quantify the financial benefit" that each bank got from its manipulations; the U.S. Commodity
Futures Trading Commission and Office of the Comptroller of the Currency don't even
acknowledge that the question might be interesting. But you can sort of gesture at an answer. For
instance you can look at the profits mentioned in the orders. So take Citigroup, the worst
offender by sheer amount of fines at $1.02 billion.
Citi's trading in EUR/USD in this example generated a profit of USD 99,000" on a trade with a
notional amount of about 542 million Euros. The Citi trader made that money by teaming up
with his chat-room buddies to manipulate a fix. Here's how they reacted: Subsequent to the ECB
fix, Citis trading was variously described by other traders in chat rooms as impressive,
lovely and cnt teach that. Citi noted yeah worked ok. Citi did some other bad stuff, but
that's the only example in the FCA order with an actual profit figure. The CFTC and OCC orders
for Citi have no profit figures at all. So we have one case of Citi making $99,000. The FCA order
covers conduct over a six-year period, though that might be a bit generous. Figure 250 trading
days a year and you get $150 million of profits for Citi if every single day was as "impressive"
and "lovely" as the day singled out by the FCA as, one assumes, a particularly egregious
example of manipulation. That's not the case: The CFTC order, for instance, recounts a fixing in
which "the Citibank trader reported that he was 'hosed.'" The manipulation was not foolproof,
and fools abounded. But take $150 million as an upper bound, and Citi paid about an order of
magnitude more in fines than it made in manipulative profits (Levine, 2014).
So much barbarism, however, still remains in the transactions of most civilized nations that
almost all independent countries choose to assert nationality by having to their own
inconvenience and that of their neighbors a peculiar currency of their own (Mill, 1894). Of all
the winds of change that have buffeted multinational corporations (MNCs) in recent years, none
has had a more pervasive impact upon their risk profile than the demise of the international
monetary system of quasi-fixed exchange rates that had prevailed until March 1973 under the
Bretton Woods agreement (1944-1971) and, later, under the short-lived Smithsonian accord
(1971-1973). A somewhat chaotic system of floating exchange rates has emerged in its stead.
The resulting heightened volatility in currencies' prices have severely disrupted the steadiness of
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multinational corporations' foreign income streams. The recent implementation of the
controversial and inflexible FASB Statement No. 8 has further exacerbated this seemingly erratic
earnings pattern by doing away with the former widely used practice of reserving for foreign
exchange gains and losses and forcing upon MNCs the periodic disclosure of such gains and
losses even though no cash flows may be involved. This unprecedented situation has stirred a
considerable amount of interest among both academics and practitioners in Foreign Exchange
Risk Management. This article reviews the literature on Foreign Exchange Risk Management
published in the last decade to identify the conceptual weaknesses underlying the normative
Foreign Exchange Risk Management decision models currently available and to suggest fruitful
directions for future managerially oriented research. (JACQUE, 1981).
The speed of economic development of a nation poses one of the most essential issues in
economic debate. A nation could accelerate the rate of economic growth by promoting exports of
Goods and services. The volume of imports is negatively related to its relative price and varies
positively with aggregate demand (real GDP growth). The higher relative price leads to
substitution away from importsnecessarily reducing the dollar value of imports as volumes
decline. Remittances have been used in financing the import of capital goods and raw materials
for industrial development. Garments manufacturing is treated as the highest foreign exchange
earning sector of the country (US$4.583 billion in 2003). However, if the cost of import of raw
material is adjusted, then the net earnings from migrant workers remittances are higher than that
of the garments sector. In 2003, net export earnings from RMG stood between US$2.29-2.52
billion, whereas the earning from remittance is net US$3.063 billion. In 1998-1999, 22 percent of
the official import bill was financed by remittances. The steady flow of remittances has resolved
the foreign exchange constraints, improved the balance of payments, and helped increase the
supply of national savings.
The contribution of remittance to GDP has also grown from a meager 1 percent in 1977-1978 to
5.2 percent in 1982-83. During the 1990s, the ratio hovered around 4 percent. However if one
takes into account the unofficial flow of remittances, its contribution to GDP would certainly be
much higher. Remittance constitutes an important source of foreign exchange for the poor
countries, which have substantial development impact as can be understood from micro and
macro point of view. In case of, macro frontier, remittances are used to make import payments
and are used for productive investment by the government. World Bank identified overseas
12

remittances achieving a favorable balance of payments and as well as creating a new resources
base for the country. In Bangladesh perspective, a significant portion of overseas earnings is
spent for consumption purposes, acquisition of assets, investment in trade and business and to
finance import of capital goods. It will positively affect the socio economic condition of migrant
families. Some of the early studies focused on the macroeconomic impact of overseas
remittances in Bangladesh. However, remittances are not devoid of adverse effects. Manpower
exports are alleged to deprive the country of their services and upsetting the normal functioning
of the economy. (Ahmed and Uddin, 2009).
Academics typically regard technical analysis-or Chartism-with great skepticism since it seems
to violate fundamental notions of rationality in foreign exchange markets. On the other hand,
many so-called puzzles in international finance are hard to reconcile with elementary notions of
rationality. Leading surveys on foreign exchange markets attest a significant lack in our
understanding of exchange rate behavior over horizons from days to a few years. (Sarno and
Taylor,2002;Frankel and Rose,1995;Taylor,1995). At the same time recent research has
established a remarkable prominence of Chartism in decision-making among FX dealers, starting
with the questionnaire (Taylor and Allen, 1992). Despite some early attempts, technical analysis
did not emerge as a major instrument to the better understanding of exchange rate movements,
on the contrary, order flow analysis has attracted attention recently (Frankel and Froot, 1990;
Vigfusson, 1997). The rise of the order flow concept should not be misunderstood as a signal to
neglect technical analysis. A repetition of an earlier questionnaire survey after nine years seems
to suggest that Chartism has gained ground among FX professionals during the 1990s. The
increasing importance of technical analysis is an unexpected finding due to several arguments:
the first argument is the-above mentioned-increasing attention given to order flows which has
thus turned the earlier competition between fundamental and technical analysis into a tripartite
battle.
This alone could indicate that technical analysis is losing ground. Second, in the 1990s foreign
exchange dealing underwent a process of concentration and international fund management was
mushrooming. The resulting larger participants are now better equipped to apply possibly more
expensive instruments which are potentially useful for fundamental analysis (Menkhoff, 1997).
Third, the relative weight of fund managers on foreign exchange markets has increased, and
precisely this group of market participants seems to rely comparatively less on technical analysis
13

(Gehrig and Menkhoff, 2005). This might also set an incentive for FX dealers to put more
emphasis on fundamentals. Fourth, there is an early suspicion that the profitability of technical
analysis may decrease over time, a claim that has been made recently for some trading rules in
the 1990s. Why should professionals rely on possibly unprofitable instruments? Finally, surveys
for the UK and US from the later 1990s have questioned a possible dominance of technical
analysis among FX dealers. On the basis of this reading of the literature, one would expect a
diminishing role and importance of technical analysis over time. Moreover, the structural
changes mentioned may have influenced the way in which technical analysis is used (Gehrig,
2006).
The exchange rate plays vital role in the financial market and its importance is increasing in the
developing economies. Aside from factors such as interest rates and inflation the Exchange rate
is one of the most important determinants of a country's relative level of economic health. They
play a vital role in a country's level of trade, which is critical to most every free market economy
in the world (Meenai & Ansari, 2004). Exchange rates are among the most watched, analyzed
and governmentally manipulated economic measures. Recent studies and analysis has proved an
unstable relationship between exchange rate and Macroeconomic fundamentals and this
instability has shown a significant effect on the volatility of exchange rates. Moreover, the
exchange rate is influenced by other income factors such as interest rates, inflation and even
capital gains from domestic securities. As the change comes in interest rates, it is immediately
reflected in Exchange rate markets (Baccheta & Wincoop, 2009).
In most of the countries, exchange rate volatility has a short run effect on export flows and there
are substantive casual relationship in which changes in exchange rate volatility Granger cause
changes in real exports(Arize, Osang & slottje, 2000).The real exchange rate contributes
importance for capital accumulation because it affects the potential for investors to provide
internal finance. As the appreciation in three factors such as discount rates, interest rates and
exchange rates attracts the foreign investors in the developed countries. Every investor wants to
have transactions in a big money market (Antinolfi1 & Huybens, 1998). Exchange rate
movements can be explained by considering two factors. (1). Credit market conditions changes
can be reflected by changes in interest rate differentials across countries. (2). Changes in
monetary policy stances of central banks, especially federal reserves. Using changes in discount
rate as a proxy for unanticipated changes in U.S monetary policy, we find that both of these
14

factors have a significant impact on daily movements of the bilateral exchange rate between the
U.S Dollar and other currencies of five considered countries. So a bit change in discount and
interest rate cause a substantial impact positively on the exchange rate among considered
countries here as a sample(Islam and Raza,2014).
The most significant effect of Monetary and Fiscal policies is felt by Exchange rates and in
respond to that exchange rates push other monetary factors like Domestic inflation, interest rates
and import prices. One way in which monetary and fiscal policies of the country affects the
interest and then inflation rate is by first influencing its exchange rate, and then interest rate
which in turn influences import prices which in turn influences domestic prices and ultimately
have a great effect on the inflation rate of the country. So, interest rate change and exchange rate
have a significant relation in a positive mode (Fair, 1982). One can extract the specific variables
or factors that determine or influence foreign exchange rate in the past from previous studies
carried out by researchers. Purchasing power parity (PPP) is the oldest popular and important
theory of exchange rate determination though its root is from no particular theoretical platform.
The idea of PPP is based on the law of one price, which denotes that the prices of every good
across countries will be equalized when expressed in terms of a common currency. As it is, it
still serves at least three useful purposes or policy implications viz: it serves (i) as an indicator of
impending currency crises or prelude to currency crises, (ii)for the purpose of monetary union or
currency pegs and (iii)as a measure of income inequality. At the empirical level, specific causal
variables were investigated using various inputs and models. For instance they used capital flow
model, test foreign direct investment, credit rating, debt servicing ratio, foreign/domestic interest
rate differential and real income proxied by real GDP. They examined such variables as
export(non-oil), ratio of the relative price of export, credit to the non-oil sector of the economy.
They focused on the role of exchange rate on BOP position in Nigeria. Others also investigated
the role of exchange rate on several other macroeconomic variables and vice versa. These
include investigated the determination of foreign exchange from monetary perspective and also
investigated exchange rate reforms and its inflationary consequences. (Allsopp and
Zurbruegg,2003).
In Nigeria, Field operators in foreign exchange identified specific factors that influence exchange
rate in the short and long run as (i) interest rate differentials (ii) speculation (iii) central bank
intervention (iv) hot money (v) hedging (vi) demand and supply (vii) exchange controls and
15

regulation and (viii) political and general economic climates. As no one policy is best for all
nations or for one country at all times, to be on a sustainable path of exchange rate policy, a
country needs to identify the macroeconomic variables and policy that fits its economic
developmental goals. What has become clear from the above review is that exchange rate as
important as it is in economic development cannot be determined in isolation of other
macroeconomic variables. It therefore becomes necessary to review the relationship of some of
these macroeconomic variables and the foreign exchange rate. (Nwude,2012). An important tool
in the global financial markets, hedging is used in every asset class to mitigate losses. This can
be utilized by anyone, whether it is an individual or corporate, to overcome the negative impact
of price volatility. For the corporate in which the business activity is dependent on import and
export of commodities, there is an automatic exposure to foreign exchange and, hence, the need
for hedging is higher. In the current context, since the world markets are interlinked, they
eventually affect and impact the movement of currencies.
Hedging, in any asset class, is ultimately a strategy to decrease or transfer risk in order to protect
one's portfolio or business from uncertainty in prices.In case of hedging in the foreign exchange
market, a participant who is entering a trade with the intention of protecting the existing position
from an unexpected currency move, is said to have created a forex hedge. With the help of a
forex hedge, a participant who is long in a foreign currency pair can protect himself from the
downside risk. On the other hand, a hedger who is short on a foreign currency pair will protect
his existing position from the upside risk. The strategy to create a hedge would depend on the
following parameters: (a) risk component (b) risk tolerance and (c) to plan and execute the
strategy. From the point of view of Indian importers and exporters, we have tried to explain this
strategy with some illustrations. It will help us gauge better as to why and how one should hedge,
and the manner in which an importer and/or exporter can hedge his currency risk.
The impact of the movement in the USD-INR currencies affects both importers and exporters. In
other words, an importer will benefit when the rupee appreciates, while the exporter will gain
when the rupee depreciates against the US dollar. The cost of import reduces when the rupee
gains strength, thus benefiting an importer, and at the same time creating a loss for the exporter,
since a stronger rupee will reduce the export remittances when converted to Indian rupees. In
order to reduce the risks associated with these uncertain movements in the financial markets,
both importers and exporters can utilize the derivatives platform of currency futures. By creating
16

an equal and opposite position in the derivatives market, a hedge can be created (Mathur,
2014).Foreign exchange intervention is the practice of monetary authorities buying and selling
currency in the foreign exchange market to influence exchange rates. Researchers have studied
whether intervention is successful in influencing exchange rate movements and how it affects
volatility. Secondarily, they have asked how the type of intervention affects these results and
through which channels it might operate. Intervention has several characteristics that complicate
ones ability to study it. It is conducted sporadically, with several interventions over the course
of a few days or weeks. Thus, it has an unusual distribution. Intervention policy is rarely stable
for long periods.
Finally, because intervention quickly reacts to exchange rate movements and other variables,
exchange rates and intervention are determined simultaneously. These problems have made it
difficult to show that central bank intervention has reduced exchange rate volatility or moved the
exchange rate in the desired direction. Yet, every central banker surveyed in Neely (2000)
those who actually conduct interventionremains convinced that intervention is effective in
changing the exchange rate. Recently two phenomena have advanced our understanding of
intervention. The first is the use of event studies to evaluate the effects of intervention.
Generically, an event study is an examination of asset price behavior associated with some event,
such as a merger, announcement, or intervention. Event studies are used to assess the markets
reaction to the event, how the event influenced prices, and whether the market priced the event
efficiently.
The second advance is the use of high-frequency databoth exchange rates and interventionto
better understand the behavior of exchange rates immediately around intervention. Despite these
advances, inferring the effects of central bank intervention remains difficult. Although describing
the data is a worthy and necessary goal, explaining the nature of the process by which exchange
rates and intervention are jointly determined requires strong assumptions, which are rarely
explicitly stated. While many intervention researchers are doubtless cognizant of such issues,
those less familiar with the literature are probably not well aware of them. The purpose of this
article is to selectively review the recent literature on the effects of intervention and to analyze
the assumptions and limitations of such exercises. Identifying the assumptions and limitations of
the intervention literature is not to condemn those procedures. Rather such recognition enables
the limitations to be better understood and overcome. This paper does not expend much effort
17

describing the disparate conclusions of the literature. The appendix summarizes such conclusions
and specific methods for interested readers. This article first discusses central bank intervention
practices and explains how researchers typically study intervention. Selected intervention studies
are then discussed. The fourth section considers the assumptions behind intervention studies,
with a special emphasis on the often implicit assumptions behind the new event-study
methodologies. In its conclusion, the article discusses the strengths and weaknesses of the
methods of studying the effects of intervention and suggests avenues for future research.
(Neely,2005).
Foreign Exchange Risk is commonly defined as the additional variability experienced by a
multinational corporation in its worldwide consolidated earnings that results from unexpected
currency fluctuations. It is generally understood that this considerable earnings variability can be
eliminated-partially or fully-at a cost, the cost of Foreign Exchange Risk Management. Is such a
cost warranted or, in other words, should corporate treasurers be concerned with the smooth
period-to-period earnings pattern so cherished by security analysts, because a volatile earnings
pattern is commonly believed to affect the firm's price-earnings ratio and, in turn, its ability to
raise funds at a reasonable cost? Modern capital market theory, which defines foreign exchange
risk as "the systematic risk associated with a foreign currency denominated return (or cost)
stream and measured by the covariance between the rate of change of the exchange rate and the
domestic market return" answers in the negative. It argues that under certain assumptions of
market efficiency (to be spelled out below) Foreign Exchange Risk Management is totally
superfluous. (JACQUE, 1981).
This somewhat extreme point of view, that a firm's risky prospects are valued directly by the
market on the basis of their expected profitability and their systematic risk (that is, the risk which
cannot be "diversified away"); thus, it should make "no difference to the valuation of either the
total market portfolio or the individual firm whether exchange risks...are passed through to the
capital market as part of the risk of the firm's shares, or 'laid off,' or transferred directly to the
market through forward exchange or foreign currency debt contracts."In this somewhat
hypothetical world, MNCs' treasurers abdicate the initiative of Foreign Exchange Risk
Management whose responsibility is fully transferred to the firm's shareholders who, in turn, will
manage the unsystematic portion of exchange risk through efficient portfolio diversification. The
relevant question for scholarly investigation thus becomes that of exchange risk diversification
18

from the viewpoint of the investor selecting claims on firms located in different countries or
operating across national boundaries (MNCs), claims which are clearly denominated in different
currencies. Normative research efforts in this direction are aimed at extending the Capital Asset
Pricing Model to a multicurrency world; however, existing International Capital Asset Pricing
Models are based on extraordinarily restrictive assumptions. (Logue and Oldfield).International
capital market segmentation (that is, international capital markets are fully integrated). The
former model presumes further that investors consume only one homogeneous good and that
Purchasing Power Parity holds at all times. (Fama, Farber and Grauer; Litzenberger, and Stehle,
1979).
Aliber writes: The question is whether the firm or individual investor can do a more effective
job of diversifying against exchange risk. The firm may have superior knowledge, and may be
able to protect itself against these risks at lower costs."Indeed, to the extent that individual
investors face exchange controls, high transaction costs, and taxation, MNCs, because they can
lessen the burden of such market imperfections, are superiorly equipped to carry out currency
diversification on behalf of their shareholders. Having explained the logic behind the relevance
of corporate Foreign Exchange Risk Management, these discussion next proceeds with a review
of available methodologies for generating the two key informational inputs for effective Foreign
Exchange Risk Management; namely, reliable probabilistic forecasts of future spot exchange
rates as well as a projection of corporate exposures on a currency-by-currency basis.
The foreign exchange market is among the most active of all financial markets. As of mid1989,
the average volume of trading activity (adjusted for double counting) was about $430 billion per
day. To get a sense for just how big this number is, consider that daily U.S. GNP is about $22
billion, and daily world trade in goods and services is about $11 billion. Since foreign exchange
trading is so much greater in volume than is trade in real goods and services, foreign exchange
markets would seem to be highly liquid and efficient. Recently this debate has escalated, as both
sides try to come to grips with the dramatic, temporary 65 percent appreciation in the value of
the dollar during the mid-1980s. Some hold that these swings in the dollar's value were
attributable to changes in fundamentals, and that given those fundamentals the appreciation was
both predictable and optimal. Others, however, point to the experience as evidence of a
capricious delinking of the dollar from its usual determinants, and argue that at least some of the
dollar's appreciation could have been prevented beneficially. The debate about whether exchange
19

rates are "correctly priced" is particularly important (in comparison to similar debates about the
pricing of other assets) since the exchange rate simultaneously affects the prices of all foreign
assets, goods, and factors of production. If Nurske's followers are right that speculation drives
prices away from fundamentals, then the argument for intervention might be considered
strongest in the market for foreign exchange. (Froot and Thaler,1990).
20
CHAPTER THREE
RESEARCE METHODOLOGY
21
3. Research Methodology:
3.1. Research Design:

Firstly, exploratory research has been conducted for gathering better information that will give a
better understanding or different financial data. It cannot give much information to conclude the
research. Then, the descriptive research has been used to draw the conclusion on this research.
Here, I used both the qualitative and quantitative method as well. Both are collected from some
unstructured sources and analyzed it for the proficient use on the research. In this research I have
collected data from unstructured sources. Here, exploratory and descriptive researches are used
for defining the research question. First Security Islami Bank provides the better services to the
customers especially foreign exchange division. I have collected data from officers who work on
the foreign exchange division. Not only qualitative data are used mostly but also quantitative
data are used where necessary.
3.2. Sources of Data:

Both primary and secondary sources of data collection procedure have been used to generate in
this report. To make report more meaningful and presentable, two sources of data and
information have been used widely.
Sources
Primary Data
Secondary Data
22
3.2.1. Primary Sources:

1. Face to face conversation with the respective officers: Face to face conversations
are useful to collect accurate information. When Respondent and question makers are doing
conversion various unknown will be known by their conversion. And it is easy process to gather
the actual information from the respondent.
2. Interviewing of the officers: Interview is also efficient process to get the research
information. Here, Respondent can give much information for the respective question.
3. Showing practical knowledge of officials: Sometimes, Respondent shares their
practical knowledge which they earn from their job. This is helpful to conclude the research
paper.
4. Relevant file study: Relevant study or documents are useful for the research which
has provided by the officers. This study is helpful to give answer of the research question.
3.2.2. Secondary Sources:

Secondary data consists of the data and information which was collected from different sources.
There are-Bank websites, Annual report of FSIBL, Audit report etc. Secondary data was also
collect from various Journals, Relevant books, Research paper or Newspaper. Internet was very
helpful to collect relevant information. From there, I have collected various comprehensive
literature reviews which were helpful to prepare the research question. Annual report and audit
reports or Bank was very influential to complete the research paper. From journals and research
paper give various database which was used before and from there, I used different variable
which was important for my paper.
23

3.3. Survey Instrument:
This survey was conducted through personal survey. The respondents asked to give the answer
of the question. Here, I used recorder to record their conversation. I used the open ended
question which I got from the literature view. I had arranged the in-depth interview, where I
asked the question one by one. The respondent gave the answer from their view point. They used
some table and analyzed some equation through the conversation. All questions was designed
about the foreign exchange operation. They gave the answer both Bangladesh and world
perspective. Literature view was helped to make the question. Firstly, I took some variables
which were included in the literature view and then asked to the officers. They shared their
practical knowledge about the questionnaire. I designed these questions to know their perception
and they answered it very confidentially. This was helpful for findings of the research paper.
3.4. Sample Size:

I surveyed 11 people (10 male and 01 female) of foreign exchange division in the First Security
Islami Bank at Dilkusha branch. There have only 11 employers in that department thats why I
couldnt take more. Here, I used both quantitative and qualitative method to get the information.
3.5. Sample Selection:

In case of this survey, I used the convenient judgmental sampling method. This was very
influential for the research paper. Firstly, I conducted with the officer in charge in the foreign
exchange division named Mohammad Abu Taher. I took the in-depth interview from him. He
gave me the answer about overall foreign activities which they conducted. Then I also selected
10 employees. And I arranged the interview with them; they answered me with very
confidentially. They answered me about foreign exchange operation in our country perspective
as well as world perspective. In term of First Security Islami Bank, dilkusha Branch is an AD
branch and must active branch. So, all employees are very well known about foreign exchange
operation. So that, interview was helpful to complete my research paper.
24

3.6. Data Analysis Method:
Thematic content analysis (TCA) was used in this survey method. For this report, I designed te
structured question for the respondent (Banker). I collected the information through both primary
and secondary sources. Here, I used both quantitative and qualitative survey method. After the
collecting data, I used to translate the respective answer and analyzed the data. I have tried to
analyze the day by the respondents view. Then I have tried to found the findings from that data.
Here, I used some sort of charts which was needed for the findings and analysis. There all was
based on foreign exchange operation. From these data, I prepared my conclusion of my research
paper.
3.7. Field Work and Data Collection:

3.7.1. Field Work:
After prepare the research question, I contracted with respondent on the bank and discussed with
them. Then, they agreed to give the interview and expressed their view point about foreign
exchange operation. I used the recorder to record their answer. They answered these questions as
a group. Every group consists of three members. They tried to give me the practical example
about the foreign exchange operation.
3.7.2. Data Collection:
In-depth interview was organized for collecting the data. The data has been also collected from
different Journal, Articles, Annual Bank report etc. Data was also collected by the face to face
conversion. Officer in charge of foreign exchange division helped me lot to collect the data. He
gave me more information which I used more in my research paper. All of the officer helped me
also.
25
CHAPTER FOUR
DATA ANALYSIS OF THE STUDY
26
4. Data Analysis:
I surveyed 11 employees including 10 male members and 1 female member. Age limit of all
employees are between 26 to 58.Their average income are 38,000 to 80,000.They all are officer
ranked. The lowest position is provisionary officer and the highest position is FAVP & incharge
of foreign exchange division. They all are highly talented, initiative, impressive, and inspiring
banking executives. I used the in-depth interview method. Firstly I set some sort of question
from the literature review then I collected the information from interviewing session. Here, I
analyzed the data which I collected from the respondents.
Q.1. How do you define foreign exchange market or foreign trade from your view point?
Whenever we talk about the foreign exchange market then one usual image come to our mind
that is Foreign exchange means the exchange of our currency to another currency or the
conversion of one currency into another currency. In case of foreign trade, we can say that its a
cross boarder business. Whenever any country buys or sells their producing products from
another country that is called foreign trade. Foreign exchange market allows currencies to be
exchanged to facilitate international or foreign trade and financial transaction. For example- A
trade will happen between Bangladeshis garments owner (Exporter) and Italian company
(Importer).They will trade between them through to the bank. The importer pays the bill by USD
or EURO or any other currencies. Say for example, the value of product is 10000 US dollar. The
importer pays it by USD. The currency rate between USD and Taka is 1:78.Then the bank pays
the bill by this currency as taka. Foreign exchange is the most active market place. In case of
import-export system, there works two different banks. One is the importer banks and another is
exporter or beneficiarys bank. Importer and Exporter are doing their transaction throughout
these banks. So it can be said that, the foreign exchange market facilitates international trade and
investment and is central to the global financial system. Here showed some foreign currency
selling and buying rate in terms of our country:
27

Currency
Buying
Selling
EUR
86.4669
86.4903
CAD
64.7308
64.7362
CNH
12.5363
12.5397
INR
1.2250
1.2254
USD
77.8000
77.8400
Q.2. Foreign exchange market is the world largest market place? Do you agree? Please
explain.
Obviously, foreign exchange market is arguably the worlds largest market place. Because of
globalization, there have various multinational companies in the world basis. They produce
different products and invest more and more in different country. For this reason, currencies are
circulated from country to country. In this world, there have almost over 200 countries and
everyday their needed various products. No one nation can produce all products ownly. Different
nation produce different product. This would happen for the comparative advantages. For
example, Bangladesh produces garment products more and more because it has comparative
advantage to produce the garments products. But the U.S.A produces industrial products more
and more because of their comparative advantages. But these two countries use both of these two
products. And this will happen at that time when the foreign trade occurs. For this reason we
need the foreign exchange. Every day the entire nation needs to import and export of their entire
product.
Another example is investment, various company invest their money in different countries. But
why? Because of comparative advantage and for secure their money. For all of these
transactions, we need the foreign exchange market. So there is no doubt to say foreign exchange
market is the worlds largest market. We know that the average daily turnover in the global
28

foreign exchange market is almost 4 trillion US dollar .This is only happen for the foreign trade
and investment. For this reason, we can say that foreign exchange market is the worlds largest
market place.
Q.3. How do you define the Hedging? Who will get benefit from hedging and how?
Hedging is used to minimize the risk. This can be utilized by anyone. It may be importer; it may
be exporter or any other market player. Hedging means the participants of foreign exchange
market both importer or exporter pre-determines their rate of exchange and transaction occurring
in order to minimize the risk. In case of hedging, a participant who is entering the trade wants to
protect the existing position from unexpected currency fluctuation. Our currency would change
in every day. Todays USD-BDT rate is 1:78.2 and tomorrow it can be 1:78.The impact of the
movement in the USD-BDT currencies affects both importer and exporter. In case of our
country, importer will get benefit when dollar value decreases and exporter will get benefit when
dollar value increases. For example- todays rate is 78.50:1(USD:BDT).An importer thought that
his payment date is 25 June, so exchange can be decrease at that date. So he request the banker
that exchange rate will be decreased in the June. So please you give my payment by 78 taka.
When 25 June come, the importer see currency do not fluctuate. So he gets benefit from that but
if the currency rate fluctuate that means it is higher than before than he faces the losses. For that
reason he takes the hedging. It can be importer; exporter or any other market player. So hedging
means forecasting the future to overcome the negative impact of their transaction. Though this is
not available in our country, but in the foreign country hedging is the popular term. For that
reason, there importer or exporter will get benefit from hedging.
Q.4. How foreign exchange increases the GDP and accelerates the economic growth?
If any countries can increases their foreign trade then there has huge possibility to increase the
GDP. But how this is possible? If foreign trade increases than export will be increases. If export
increases than GDP will be increases. Here are given an equation by which we will understand
clearly, how foreign exchange increases the GDP.
29

GDP=C+I+GS+NX
Here,
C=Consumption
I=Investment
GS=Government spending
NX=Net export
The people who are spending their earning money in their own country that is called
consumption. If we buy any fixed asset from the spending money that is called investment.
Government spends money for consuming the product which are using in their country. And the
last one is net export.Net export means Total export-Total import. If export is greater than
import at that time net export will be positive and GDP will be increases. But import are greater
than export than GDP will be decreases. So it can be said that if export are negative than whole
equation will be changes. So it has proved that foreign exchange increases the GDP.
Foreign exchange also helpful to accelerate the economic growth. A nation could accelerate the
rate of economic growth by promoting exports of goods and services. If the foreign trade
increases, GDP will be increases at the same time economic growth will be accelerated.GDP and
economic growth are interrelated with each other. Whenever our country could increases the
GDP then per capital income of our people will be increases. If per capital income is increases
then it can be accelerated the economic growth. From this analysis we can say that foreign
exchange increases the GDP as well as accelerated the economic growth.
Q.5. Researcher said-Remittance-Import-Export are interrelated. What is your say

regarding this? How these three work together?
Import-Export-Remittance, these three sector are foreign exchange related. Firstly, we explain
about remittance. There have many ways by which we can earn remittance. Foreign remittance
refers to the transfer of fund from one to another country. In our country there are millions of
people who are doing job in the foreign country. We get remittance from their money. But we
get huge amount of money as remittance from foreign exchange specifically export. Every fiscal
30

year, there have lots of products which are exported from our country to another country and we
earn huge amount of foreign currency and rise our foreign reserve. Remittance has been used in
financing the import of capital goods and raw materials for industrial and social development or
any other sector. There are two types of remittance. Such as1. Inward remittance
2. Outward remittance
Whenever we export our products than we earn foreign inward remittance and we use it for
importing the product or any other else. Which remittance we use for import purpose that is
called outward remittance. So exporting the products increases the foreign remittance and we use
it for importing the products. For example- we have huge amount of foreign exchange reserve
that we get from remittance. When we import 1dollar of product then remittance will be
decreases. And if we export our product then foreign reserve will be increased. By this example
we can say, these three sectors are interrelated to each other. Export is the highest foreign
exchange earning sector and import is the highest foreign exchange spending sector. So
remittances are related both import and export. Though, we can earn remittance from-foreign
T.T, D.D, or bill but export is the highest earning sector. So we all are agreeing with these terms
that remittance, import and export are interrelated.
Q.6. Which things are needed to minimize the customer dissatisfaction and to increase the
customer satisfaction?
In case of any types of business or services, customer have to be recognized the most important
and impactful person. So, proper services have to give to the customer. In case of foreign
exchange business, customer (importer or exporter) run their business for the long period of time.
So it is necessary to give them proper services so that they are continuing it. when importer or
exporter want to open the L/C, bankers should open it at that time. But why? Say todays
exchange rate is 1:78.2(dollar: taka).who one can say, this will be same in the next day. The next
day exchange rate can be appreciated or depreciated. If the bankers do not open it today then
31

importer or exporter faces unavoidable circumstances in the next day. So, the bankers should
give the services in the proper day because anything can happen in the next day.
In terms of investment, we know interest rate is fixed for the certain period of time. But in case
of foreign exchange; it can be changed day to day. Todays rate is 1:78.2, tomorrows rate will be
1:78:3 because it can be changed each and every hour. The next benefit is Hedging. If every
bank applies the hedging, than many importer or exporter can minimize their losses. Bankers
should clear it for the importer or exporter. Bankers should give the proper information to the
customer. What is this information/these are-currency fluctuation, international market position,
currency rate, interest rate etc. Sometimes customer can make mistake to give the information
which are needed to open the L/C. So, bankers should help the customer to minimize the
discrepancies. Bankers should give these services to the customer to minimize the dissatisfaction
and to increases the satisfaction.
Q.7. Which risks are involved whenever you conducted the foreign exchange business?
There are various risks which are occurs whenever we conducted the foreign exchange business.
When we conducting the foreign trade, sometimes we dont know which product is going from
our country to another country and which are coming. Though importer or exporter ensure that
specific or legal products will be exported or imported. But there have huge possibility to export
or import the illegal products. This is one of the risks. Most of the time, when we import various
products and spend foreign currency .Is this legal money? It could be illegal money by which we
import the products. Same cases can be happened in export. Which currency we earn those can
be legal or illegal money. So, which dollar or money we spend or earn that is important for
foreign exchange. Now-a-days money laundering is the vital concern for every country. So this is
another risk for foreign exchange business. In case of foreign trade, sometimes importer or
exporter uses the black money. Another risk is terrorist financing. There have many terrorist who
want to invest their black money in different country so that they can prove it that these are not
black money. Another important risk is exchange rate risk. Exchange rate plays vital role for the
foreign exchange market. Exchange rate changes the real export. Unexpected currency
fluctuation should arise the foreign exchange risks. For example-Todays exchange rate is
32

1:78(dollar: taka).Suddenly the dollar value is rising, say it would be 78.20, in that time the
importer will faces the great losses for their product. So up-down the exchange rate should arise
the risks in foreign exchange. Another one is interest risk. This is related to the currency swaps,
forward out rights and option in foreign currency trading. These risks are involved in foreign
exchange business.
Q.8. Economists say Erosion of competitiveness of economy leads to fall in export. What
is your opinion regarding this?
Erosion of competitiveness of economy leads to fall in export is true in maximum cases .If we
have no competitor than effectiveness and efficiency will fall and output of product will be
decrease. Some people do not agree with this term. In case of monopoly market, they do not
agree with this. In monopoly market, we export such kind of product which is not producing in
another country. This is benefit for the monopoly market. But there have low possibility that
only one country will produce that product. But scarcity of competitiveness, Quality of goods
will fall and export will fall as well. In case of whole world, Each and every country wants to
export some kind of product. Say for example, Garments products are producing in 5 countries at
a time. But which country product grape the market hugely, of course quality of product,
efficiency and effectiveness is needed to sell it more. But one thing is more important that is
cost. Because we know almost every country produce quality full product because of their
effectiveness. If we reduce the cost, then we sell it hugely and people buy it more in the foreign
country. For example- USA, UK, China, produce the car at a time. They are producing the same
quality car. But which product will sell more. We know Chinese car will be sold more. But why?
All of the country use same equipment, same procedures. The answer is- cost price and another
think is currency rate. China reduces their production cost price and their currency rate is low.
Thats why they sell it hugely. In case of china and Japan, their currency rate is cheaper than
USA and UK. So when they sell their product in international market or USA, they can sell it by
low price because of the difference between USD and CNH. So they can sell any kinds of
product hugely because of their currency rate. In case of Bangladesh, USD-BDT currency rate is
1:78 but CNH:BDT rate is 1:13.So we take Chinese car more than USA or UK. If there have no
competitor for USA or china, than they do not give the much emphasize to produce the qualitiful
33

or low cost price product. Then there export would fall. So it can be said that erosion of
competitiveness of economy leads to fall in export.
Q.9. Which sector is the highest foreign exchange earning sector in our country and why?
Obviously, Garments sector (RMG) is the highest foreign exchange earning sector in our
country. Huge amount of remittance are coming from readymade garments sector. Now the
question is-why this is the highest earning sector. In our country, government had taken the
policy that one sector will be highly flourished sector which have huge possibility to dominant
the international market. And garments is that sector which have the huge capability to
dominant the market. This is why? Because of government policy is so easier for the garments
sector. There have no any another country which policy is so easier from our country in case of
RMG sector. Here any exporter gets benefit 80 dollar back to back L/C by submitting the 100
dollar export L/C. That means, exporter can buy 80 dollars raw materials by submitting 100
dollar L/C. They get this benefit without any payment. This benefit does not exist in any other
country. For this reason, Bangladesh is the heaven for the buyer who wants to buy the garments
product. Another one is the labor cost. There have no any other country which labor cost is so
cheap as mine. For lowing the labor cost, exporters sell their product hugely to the international
market by low cost. International buyers are interested more to buy our countries product
because of low price. We know every year our garments industry face various obstacles such as
fire burning, another injurious accident but the buyer doesnt return from our country. Because
they want to buy the low cost product and they know only our country provide the low cost
price. So, they are searching, where the cost is low. From all other country, our labor cost is low
thats why our products price is low. So garments industry is the highest foreign exchange
sector because of government policy and low labor cost and low raw materials cost.
34
Q.10. Any special opinion that you feel necessary related to overall foreign exchange
operation; please write it down?
We are so much dependent on garments sector. This is not so much good for our long term
development. Any how this sector will fall then how we overcome that situation. So we need to
search various sectors where we have possibility. Any unavoidable situation can be happened.
There have various reasons. For example- if any country wants to be a highest garments product
producing country and they want to lead the market then they reduce their labor cost and change
their policy about garments industry. At that time we lost our position in the international
market. So we should realize the upcoming situation. What should we do? We should emphasize
on more than two or three sector so that we can avoid any kind of negative impact. We have
many other sectors if where we can give emphasize more than we can increase our probability
and reduce our risk. This is not impossible. So, government should dependent on another sector
to earn the foreign remittance. We have to do portfolio investment so that we can increase our
probability and minimize our risk.
35
CHAPTER FIVE
FINDINGS OF THE STUDY
36
5. Findings and Analysis:

The first question was How do you define foreign exchange from your view point?
According to the respondents, foreign exchange refers to the exchange of our currency to another
currency or conversion of our currency into another currency. People are able to buy or sell and
speculate on currencies in the foreign exchange market. A foreign exchange market facilitates
the international trade and investment and it is a central to the global financial system. Foreign
trade refers to the cross boarder business. According to the literature; when someone mentions
foreign exchange market, the usual image that immediately comes to our mind is a person
waiting behind a counter while a clerk just behind the pointing glass counts and changes your
local currency into US dollar or any other currency (Villamar, 2012).
Foreign exchange market allows currencies to be exchanged to facilitate international trade and
financial transactions (Bangladesh Bank, 2012). Market participants both public and private,
commonly think of the foreign exchange market as highly liquid at all times. Here, traders are
able to sell, buy or exchange the currencies; is one of the worlds largest and most actively traded
financial markets (Mancini et al, 2012). They also said that it is a form of exchange for the global
decentralized trading of international currencies. Financial centers around the world function as
anchors of trading between wide ranges of different types of buyers and sellers around the clock
(Charles, 2004). Foreign exchange market assists international trade and investment by enabling
currency conversion. The foreign exchange market works through financial institution. Most of
them are bank but there have some insurance companies who are involved here.
By summarizing both point of view (respondent view and literature view), there have some
points where they have express their similarities view. They both are said- foreign exchange is
the conversion of currency, it facilitates the international trade and financial institution. They all
are agreeing that foreign exchange market works through financial institution such as bank. But
literature said not only bank but also other institution such as insurance are also involved there.
This point is contradicted with the respondents. Literature also said that the foreign exchange is
highly liquid at all times. But the respondents did not mention it. At one point, they are similar
that foreign exchange markets are related to the international sellers and buyers.
37

From literature view, the participants of foreign exchange can be either public or private but
respondents didnt mention this point. Though there have some similarities or contradict point
but it can be said that foreign exchange is the exchange of one currency to another currency and
it facilitate the foreign trade and also it is highly liquid market. Here are given some currencies
rate in terms of Bangladeshi Taka:
Bangladeshi Taka
1 Taka
in Takas
British Pound
0.0082
122.5
Euro
0.0113
88.73
Swiss Franc
0.0118
85.05
American Dollar
0.0128
77.91
Canadian Dollar
0.0154
64.83
Australian Dollar
0.016
62.62
Chinese Yuan Renminbi
0.0796
12.56
Russian Ruble
0.636
1.573
Indian Rupee
0.814
1.228
Japanese Yen
1.53
0.6532
The Second question was Foreign exchange market is the worlds largest market place? Do
you agree? Please explain? According to the respondents, there is no doubt about the foreign
exchange market is the worlds largest market place. They said it because of globalization. There
have almost 206 countries in the world. All of the countries needed lots of product for their
necessities. No one country can produce all products at all time. So they feel needs of the trading.
All countries currencies are not same. For that reason currencies are circulated from country to
country. They also said about the investment. Various multinational companies invest their
money in different countries. They have invested their money where they get comparative
38

advantages and also for secure their money. There have huge amount of average daily turnover
in case of foreign exchange.
According to the literature, foreign exchange market is arguably the worlds largest market place
(Villamar, 20110. It has an average daily turnover about $5 trillion. It was on about $4 trillion as
of April 2010 (Bangladesh bank, 2012).It has increasing day by day. Bottom line foreign
exchange has a huge turnover (Villamar, 2011). Here are given daily averages turnover of global
foreign exchange:-
Here, we see the US dollar was the dominant currency. Most of the deals contained the dollar on
the side. One of the prime advantages to trading foreign exchange is the sheer volume of
geographically dispersed market participants. This is turn creates liquidity which cannot be
matched by any regulated exchange traded product or instrument. They also said that the foreign
exchange market in which traders are able to buy, sell, exchange and speculate on currencies, is
one of the worlds largest and most actively traded financial markets (Levine, 2014). They said it
as a worlds largest market place because of size, market participants commonly regard foreign
exchange as highly liquid at all times- liquid in the sense that you can buy or sell very large sums
quickly and without turning the price against you by much (Mancini et al. 2012).
39

From the respondents view and literature view, we can said, they are agreeing strongly with one
point that the foreign exchange market is the arguably world largest market place. Respondents
agree with this term from two point of view-globalization and another one is investment. These
two points are similar with the literature point of view. But literature said some extra variables.
They said about the size of the market, liquidity of the market which are contradict with the
respondents view. Respondents not mention the about the daily average daily turnover but
literature specifies the actual average daily turnover. Literature invents some advantages by
which we can say foreign exchange is worlds largest market place. We can say that in case of
globalization all of the nations are interrelated. Trades are occurring among all countries. There
may have some similarities and contradict viewpoint but it is true that foreign exchange market
is the worlds largest market place.
The Third question was How do you define the hedging? Who will get benefit from hedging
and how? According to respondents, hedging is used to minimize the risk. This can be utilized
by anyone. Importer, exporter or any other market player can use this. They also said that
hedging means the participants of foreign exchange market both importer or exporter predetermines their rate of exchange and transaction occurring in order to minimize the risk. In case
of hedging, participant who is entering the trade wants to protect the existing position from
unexpected currency fluctuation. Because currency can be changed in every moment .In our
country perspective, if dollar value decrease than importer will get benefit and if dollar value
increase than exporter will get benefit. Moreover they mentioned it as a popular term in case of
foreign exchange market.
According to the literature view, hedging is used in every asset class to mitigate losses. They can
be utilized by anyone whether it is an individual or corporate, to overcome the negative impact
of price volatility. For the corporate in which the business activity is department on import and
export of commodities, there is an automatic exposure to foreign exchange and hence, the need
for hedging is higher (Nwude, 2012). They said that the current worlds market are interlinked so
they are eventually affect the movement of currencies .They used hedging in order to protect
ones portfolio or business from uncertainty in prices. In case of hedging in the foreign exchange
market, a participant who is entering a trade with the intention of protecting the existing position
40

from an unexpected currency move. With the help of forex hedge, a participant who is long in a
foreign currency fair can protect himself from downside risk. On the other side, a hedger who is
short on a foreign currency fair will protect his existing position from the upside risk.
They established a strategy to create a hedge would depend on three parameters: a) risk
component b) risk tolerance c) to plan and execute the strategy .They give an example from the
point of view of Indian importer and exporters .The impact of the movements in the USD-INR
currencies affects both importers and exporters. In other worlds, while the exporter will gain
when the rupee appreciates, while the exporter will gain when the rupee depreciates against the
US dollar .The cost of import reduces when the rupee gain strength thus benefiting an importer
and at the same time creating a loss for the exporter .Since a stronger rupee will reduce the
export remittance when converted to Indian rupees (Mathur, 2014).
By measuring the both of point of view, we can say that hedging is used to minimize the ultimate
risk of the importer or exporter. They gave similarities answers that this is used by anyone .It
may be importer, may be exporter or anyone. Literature points out that it is a strategy and its
reduce the portfolio risk .This is contradict with the respondents .When the local currency
increases than importer will gain and when the local currency decreases then exporter will gain
.In that point, the respondent and literature express their same point of view .They also said this
is important both importer and exporter. Literature established three parameters for the hedging
but the respondents dont. From these entire variables, now we will see the differentiate of
unhedging and hedging company:-
41

Hedging with an FX Forward
Unhedge company
Effect of Hedging
If in 3 month, spot rate is 7.4500
Unhedge company has already bought

EUR Forward
- Unhedge company must pay:7.45 * 1,000,000= HRK 7,450,000
- Hedge company will pay

7.375 * 1,000,000=HRK
7,375,000
Company saved By Hedging:

7,450,000 7,375,000= HRK 75,000
Here we see the hedging company save their money and minimize their upcoming risk. Importer
or exporter should use this benefit. Bank should clear it to the importer or exporter.
The fourth question was How foreign exchange increases the GDP and accelerates the
economic growth? According to the respondents, if any countries can increases their foreign
trades then there have huge possibility to increase the GDP. They also said if foreign trade
increases then export will be increased and obviously GDP will increases for increasing the
export. In case of foreign exchange, by exporting the products our country earn the remittance
and use it for the consumption, investment, and government spend it for the consuming lots of
products. For these reasons, we need export lots of product and if we are able to do it then GDP
42

will increase. And this is true that when a country increases their GDP then automatically their
economic growth will be accelerated.
They said GDP and economic growth are interrelated with each other. They also said that with
the increasing of the GDP, per capital income of our people will be increased. If per capital
income increases then it can be accelerated the economic growth. According to the literature,
GDP is one of the most widely monitored of all foreign exchange economic indicators. It is an
important measure of the health of an economy and it also reflect the standard of living of that
nation. They also said that goods produced are exported and the country shows an expanding
economy. They mentioned that a nation could accelerate the rate of economic growth by
promoting exports of goods and services. The volume of imports is negatively related to its
relative price and varies positively with aggregate demand (real GDP growth) (Ahmed & Uddin,
2009).
Huge amount of remittance earned by the exporting of various product, and the contribution of
remittance to GDP has also grown from a meager 1 percent in 1977-1978 to 5.2 percent in 198283.During the 1990s, the ration hovered around 4 percent (Ahmed & Uddin, 2009). However if
one takes into account the unofficial flow of remittance, its contribution to GDP would certainly
be much higher. From both point view, we can see there have some points where they are
similar. Both are said- export is important for increasing the GDP. And by promoting the exports
of goods and services, a nation could accelerate the rate of economic growth. In this point, they
have answered almost same.
The literature said, increasing by GDP, standard of living will be increased. This point is
contradicted with the respondents. Respondents said- with the increasing of GDP, per capital
income of our people will be increased. In many cases, they expressed same point of view. They
emphasized mostly on export to increase the GDP. Another variable where they agree if export
increases then GDP will increases as well as economic growth will be accelerate. In our country
perspective we already know Foreign exchange reserves are increasing day by day. Recently, its
creating the milestones that foreign exchange reserve exceeds the 22 billion US dollar. We can
see this in picture-
43
Last month, it has been over 23 billion dollar. For this reason, GDP is increasing day by day. By
increasing the GDP, our economic growth will be accelerating. So, we can say that foreign
exchange increases the GDP and also accelerate the economic growth.
The fifth question was Researcher said- Remittance-Import-Export are interrelated.

What is your say regarding this? How these three work together? According to
respondents, Remittance, import and export are foreign exchange related activities. They define
the remittance as the transfer of fund from one country to another country. They said that we can
earn foreign remittance from two ways. The first one is the exporting of the products and the
second way is the local people earning who works in foreign country. They point out that the
remittance raises our foreign reserve. We earn it as a huge amount by the exporting of the
products or services. Here, showed the Bangladesh exports from January 2014 to 2015.
44
By the exporting products, we earn huge amount of remittance. Now Showed the remittance
earning From January 2014 to 2015.
There have two types of remittance. The one is inward remittance and the second one isoutward remittance. Inward remittance are earning by the exporting the products. And this
45

remittance is used to the importing of products that is called outward remittance. They also
mentioned that export is the highest foreign exchange earning sector. According to the literature,
remittances have been used in financing the import of capital goods and raw materials for the
industrial developments. The steady flow of remittances has resolved the foreign exchange
constraints, improved the balance of payments and helped increase the supply of national
savings. Remittance constitutes an important source of foreign exchange for the countries, which
have substantial development impact as can be understood from micro and macro point of view.
From macro frontier, remittances are used to make import payments and are used for productive
investment by the government.
They established the reference of World Bank. World Bank identified overseas remittances
achieving the favorable balance of payments and as well as creating a new resources base for the
country (Ahmed & Uddin, 2009). They also mentioned the sector where we spend our
remittance. This is spent for consumption purposes, acquisition of assets, investment in trade and
business and to finance import of capital goods. It will positively affect the socio economic
condition of migrant families.
From both point of view, There have various similarities thought of both. They all are said same
things that by exporting the products, we earn remittance lot and they established the same point
of view that the most of the remittances, we spent to import the product. Literature said their
opinion by the macro and micro point of view. Literature said that the remittance affects the
socio economic condition. This part is contradicted with the respondents. They didnt mention it.
But they both are said- remittance constitutes the important source of foreign exchange and this
is used for the local development. So it can be said that these three sectors are interrelated and
works together.
The sixth question was which things are needed to minimize the customer dissatisfaction
and to increase the customer satisfaction? According to respondents, customer satisfaction is
needed for all types of business. It is not only for the foreign exchange business. But thats true,
it is mostly important for the foreign exchange. Here importer or exporter runs their business for
the long period of time. So, it is necessary to give them proper services so that can continuing
46

their business. Foreign exchange related organization such as bank should give the more
emphasize on it. Exchange rate is changed day to day. So, this is needed to give the services at
the present time .For example, an exporter or importer want to open the L/C right now. So,
banker should open it today. Because of exchange rate may be changed tomorrow. Bank should
give the hedging opportunities to the customer.
In some times, there may be occurred huge currency fluctuation, fall the market position. Then
bank should give the information to the customer. In case of literature, they mostly emphasize on
one point. Foreign exchange related organization should give the benefit to the exporter or
importer or any market player. They also said about the exchange rate, hedging, foreign
exchange intervention etc. These are important for importer and exporter. It is duty of the bank
or exchange related companies .From both point of view, one is the common scenario that is
customer satisfaction is important for the foreign exchange business.
They express similar point of view, bank should take the extra care for the importer or exporter.
If importer or exporter gets benefits then foreign trade will be increased. Not only banks but also
other financial organization which are related to the foreign exchange market. They all should
give emphasize on it. So, bank should increase the services .So that higher portion of foreign
trade are assured by the importer or exporter.
The seventh question was Which risks are involved whenever you conducted the foreign
exchange business? According to the respondents, they mentioned various types of risks which
they feel whenever they conducted the foreign exchange business. As we know, foreign
exchange mostly related to the trade and sometimes we dont know which product is going from
our country to another country and which are coming. Sometimes importer or exporter may buy
or sell the illegal product. They also concern about the black or illegal money. This money can
be used for the exporting and importing the products. They have mentioned another risk that is
money laundering. Now a days money laundering is the vital concern for the foreign
exchange.
They have mentioned another risk which is terrorist financing. In case of foreign exchange
market, many terrorist invest their black money in different countries for avoiding the risk.
47

Another one is the exchange rate risk because it can be changed the real export. At they said
about the interest rate. Fluctuating the interest rate, importer or exporter may have suffering.
According to the literature, foreign exchange risk is the systematic risk associated with a foreign
currency denominated return (or cost) steam and measured by the covariance between the rate of
changes of the exchange rate and the domestic market return. It as an additional variability
experienced by a multinational corporation is its worldwide consolidated earnings that results
from unexpected currency fluctuations. It is generally understood that this considerable earnings
variability can be eliminated partially or fully at a cost, the cost of foreign exchange risk
management (Jacque, 1981).
They also said about the exchange rate risk. Because exchange rate plays a vital role in the
financial market and its importance is increasing in the developing countries (Antinolfil &
Huybens, 1998). They also said about the hedging risk. Though the respondents mentioned about
the various types of risk but the literature didnt. In case of two risks, they both are expressed
similarities opinion. First one is the exchange rate risk and another one is sudden currency
fluctuation. But the literature mentioned some another types of risks which are hedging risk,
currency barrier etc. These are contradicted with the respondents. At the same time, respondents
feel some sort of extra risk such as terrorist financing, cross boarder risk, interest risk, money
laundering etc. This are also contradicted with the literature. I think, they all are said this risk in
their own point of view. Respondents said this in our country perspective as well as world.
Literature mentioned it as the worldwide foreign exchange risk, not only for the single country.
The Eighth Question was Economist says erosion of competitiveness of economy leads to
fall in export what is your opinion regarding this? According to the respondents, they are
agreeing with the economists that erosion of competitiveness of economy leads to fall in export.
Scarcity of effectiveness and efficiency will fall and output of product will be decreased .They
also said that this is not applied in the monopoly market. In case of globalization each and every
country wants to export some sort of product. For that reason, they all are trying to produce the
qualitative products .But which country products sell mostly. Those countries produce quality
product with minimizing the cost of production. They also said that, in this comparative market,
48

all of the countries produce qualitative products. If there would have no competition; they do not
produce qualitative products and do not give the much effectiveness.
According to the literature, they also agree with this term. But they emphasize on the
globalization. In case of globalization, the world is getting smaller. So, competitors are
increasing day by day. They also said that needs to foreign trade, all of the countries want to
produce such product where they have comparative advantages. They also said that international
market are interlinked .So, there have hue competition between all of the comparative countries
.From both point of view, we can say ,respondents and literature all are agreeing with this
question. There have one contradict part; the respondents said this is not applicable in the
monopoly market. But the literature said day by day the world is getting small. So no nation can
leads the monopoly market .They both are use the globalization issue for the foreign exchange
market .So we can say it is true that erosion of competitiveness of economy leads to fall in
export.
The Ninth Question was Which sector is the highest foreign exchange earning sector in our
country and why? According to the respondents, garments sector (RMG) is the highest foreign
exchange earning sector in our country perspective. Because huge amount of remittances are
coming from the garments products. In case of total export, around 75 percent is the RMG
products. In our country perspective, there have some reason by which we can say it as the
highest foreign exchange earning sector. Here, the first reason is the lower labor cost. There have
no any single country where labor cost is too low as mine. They also said that importer always
want to buy the lower cost price.
For this reason Bangladesh is the heaven for the international buyer. Another reason is the
government policy. Our government policy is so easier for the garments industry. Here, importer
or exporters of garments products get benefit from the government as well as bank. Garments
industry increases the Growth domestic product. Our countries GDP mostly depend on Garments
sector. Here are given how RMG affects mostly on GDP:
49
Major Products Export From Bangladesh And

Contribution to GDP
1.21%
0.72%
0.06%
1.77%
2.60%
RMG
11.56%
2.19%
Frozen Food
4.22%
Jute Goods
Leather
Chemical Products
75.65%
Raw Jute
Agri Products
Tea
Others
In case of literature view, there have some different point of view. Some literature said that it
depends on the country to country. Garments sector is not the highest foreign exchange earning
sector in all country. It can be said that trade is the highest foreign exchange earning sector and
foreign investment also. In some countries, tourism is the highest foreign exchange earning
sector. In our country perspective, garments sector is the highest foreign exchange sector
(Ahmed & Uddin, 2009) and some literature are agreeing with this term.
There is no doubt; foreign exchange market is the worlds largest market place. And this howbecause of international trading. In case of trading there have lots of product sell or buy in the
international market. Not only the garments products but also some another industrial product.
So, as a single sector, garments products are not the highest earning sector in all country.
Different nation use different sector as the highest foreign exchange earnings. From both point of
view, we can say that highest foreign exchange earning sector varies from country to country. In
case of our country and also china, garments industry is the highest foreign exchange earning
sector. But most of the countries (such as New Zeeland, Canada, India.etc) highest earning are
coming from tourism sector or another.
50

So, this is the most contradict part between the respondents and literature. Respondents said it in
our country perspective but the literature said it as worldwide perspective. But they both are
expressed same opinion that trade is the highest foreign exchange earning sector. In our country
perspective, RMG industry leads the total export. Here are given the comparative statements on
export RMG and others product:
Comparative Statement on Export Of RMG And Total Export

Of Bangladesh
30000
25000
Value
20000
15000
10000
5000
0
EXPORT OF RMG (IN
MILLION US$)
200607
200708
200809
200910
201011
201112
201213
9211.2310699.812347.7712496.7217914.4619089.6921515.73
TOTAL EXPORT OF
BANGLADESH (IN MILLION12177.8614110.815565.1916204.6522924.3824287.6627018.26
US$)
Source: Data Source Export Promotion Bureau Compiled by BGMEA
By this comparative statement, we can say that Garments industry is the highest foreign
exchange earning sector in our country. Government should minimize the discrepancies to run
the garments industry. As it is our promising sector to increase the GDP so government should
minimize the risk and avoid the man created accident. So that, clean environment may be created
by the workers.
51
The last question was Any special opinion that you feel necessary related to overall foreign
exchange operation? Respondents said, we are so much depending on Garments sector. This
can be leads to fall our total export. If in any cases garments industry fall then what will be
happened? That we cant imagine. So we should realize the upcoming situation. They emphasize
on portfolio investment so that we can increase our probability and minimize the risk. In case of
special opinion literature didnt say anything more. They suggest only some fruitful direction
future managerially oriented research. By summarizing the all discussion, it is needed to
minimize the risk. Foreign exchange related companies should emphasize the more for smoothly
foreign exchange operation. Not only one or two sector, we need to give priority the entire
promising sector.
52
CHAPTER SIX
CONCLUSION
53
6. Conclusion:
The aims of this report were to analyze the foreign exchange management of first security islami
bank ltd. Here I analyzed the foreign exchange procedures and activities related to the bank and
also analyzed the import & export system. After end of the report, I fulfill my objectives which
are set by me in this report. The first objective was To analyze how foreign exchange impact on
our economy. In case of foreign exchange import and export are important. We already knew
that a nation could accelerate the rate of economic growth by promoting exports of goods and
services. GDP plays an important role to raise the economic growth. And we can increase our
GDP by promoting export. And we know for grow thing the GDP, per capital of our people will
be high. By exporting the product or services, we earn huge amount of foreign remittance which
have been used in financing the import of capital goods and raw materials for the industrial
development. Foreign exchange earnings also increase our foreign reserve. So it could be said
that foreign exchange plays vital role in our economy.
The second objective was To achieve the practical knowledge about the foreign exchange
operation. Foreign exchange refers to the conversion of one currency into another currency.
Foreign exchange market is the worlds largest market place. It achieves the huge amount of
daily turnover. Import and export are the main sector of the foreign exchange operation. It runs
the business through the bank. Sometimes some financial institution earns the foreign exchange.
Exporting the products, a nation earn huge amount of foreign remittance. And importing the
products or services nations uses this remittance which is called outward remittance. In case of
foreign trading, importer or exporter open L/C in the bank and bank help them to complete the
trading procedures. Bank works here as a media. These all are involved in this report.
The third objective was To know the views of export and import procedures. Here I have
analyzed the procedure of import and export. The foreign exchange markets, in which traders are
able to buy, sell, exchange and speculate on currencies. And this will be happening by the import
and export. Whenever a nation needs any product which is not produce in their own country then
they import from another country. At the same time, export refers to the sell extra product of
nation. Traders run their import and export by the bank. Two or more different bank works there
for importing and exporting the product or services. The traders need to open the L/C and they
54

confirm their all information to the bank. It is a long run business so the bank give more
emphasize on it. These all procedures included in this report.
The fourth objective was To identify the risk involved in the foreign exchange business. I have
already discussed about various risk which are involved in foreign exchange business. There
have different types of risk which can be occurred in conducting the foreign exchange business.
These are- exchange rate risk, interest rate risk, credit risk, terrorist financing etc. I have
involved all of these risk in my report. Among these risks, exchange rate risk plays the more
impact in the foreign exchange business. Unexpected currency fluctuation can make great losses
for the importer and exporter. For avoiding the currency fluctuation risk/exchange risk. Importer
or exporter can use the hedging which was discussed in this report so this objective is fulfilled by
this report.
The fifth objective was To analyze the interrelation between remittance and export-import.
Remittance are earning by the exporting of the products or services. And remittances are used for
the import of goods. These remittances increase our GDP and accelerate the economic growth. In
case of country we earn the huge amount of remittance by exporting the garments products.
Remittances are two type- (1) inward remittance (2) outward remittance. By exporting the
products inward remittance and for importing the product or services we use outward remittance.
The steady flow of remittance improved the balance of payments and helped increase the supply
of national savings. However these three sectors are foreign exchange related activities and are
interrelated with each other. These are analyzed in the report.
Banks and financial institutions play an important role in the process of economic growth of a
country. Given their considerable economic potential, these institutions have a far reaching
impact on the development and welfare process of the surrounding societies. These financial
institutions depend, in accumulating their financial resources, basically on the inflow of deposits.
In order to survive and achieve success, these banks endeavor to attract clients in search of loans
to finance their different activities according to the banks established terms and conditions.
These banks, which are called commercial banks, depend in their transactions on the interest
rate, as the driving factor, which stimulates all their dealings.
55

In a developing country like Bangladesh, banking business is very much competitive. More than
fifty banks are operating at this moment and competing to hold maximum market share. For a
smoothen operation every bank must have the capability of managing asset/liability, liquidity
and credit. First security islami bank is operating the smooth foreign exchange business. They
are trying to increase the customer satisfaction day by day. Import, Export and Remittance sector
are flourishing over a decade. I got learn so many things about foreign exchange related activities
such as import, export, procedures of foreign remittance and performance of foreign reserve
during my internship period. I got learn the impact of foreign exchange in case of increasing the
local GDP and accelerate our economic growth. Here I set some sort of open ended question by
which I knew the foreign exchange procedures from respondents (Banker) point of view. At last,
it can be said that foreign exchange market is the worlds largest market place. The averages
daily turnover in global foreign exchange markets is estimated $5.2 trillion. The foreign
exchange market facilitates international trade and investment and is central to the global
financial system. In this report I included the all procedures of foreign exchange, how its impact
on our economy, how its increases the foreign reserve etc. Here I showed the different graph by
which we easily understand the foreign exchange procedures.
56
CHAPTER SEVEN
APPENDIX AND REFERENCE
57
7.1. Appendix:
Q.1. How do you define foreign exchange market or foreign trade from your view
point?
Q.2. Foreign exchange market is the world largest market place? Do you agree?
Please explain.
Q.3. How do you define the Hedging? Who will get benefit from hedging and
how?
Q.4. How foreign exchange increases the GDP and accelerates the economic
growth?
Q.5. Researcher said-Remittance-Import-Export are interrelated. What is your
say regarding this? How these three work together?
Q.6. Which things are needed to minimize the customer dissatisfaction and to
increase the customer satisfaction?
Q.7. Which risks are involved whenever you conducted the foreign exchange
business?
Q.8. Economists say Erosion of competitiveness of economy leads to fall in
export. What is your opinion regarding this?
Q.9. Which sector is the highest foreign exchange earning sector in our country
and why?
Q.10. Any special opinion that you feel necessary related to overall foreign
exchange operation; please write it down?
58
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Foreign Exchange Management Of First Security Islami Bank

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which could lead to

operations. Sterilization by the central bank means responding to increases in reserves so as to

Foreign Exchange Management Of First Security Islami Bank

position, BALANCE OF PAYMENTS, and overall macro-economic situation. Guidelines are

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

1.2 Aims and Objectives:

Foreign Exchange Management Of First Security Islami Bank

1.3 Rational of the Study:

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

3.1. Research Design:

3.2. Sources of Data:

Foreign Exchange Management Of First Security Islami Bank

3.2.1. Primary Sources:

3.2.2. Secondary Sources:

Foreign Exchange Management Of First Security Islami Bank

3.4. Sample Size:

3.5. Sample Selection:

Foreign Exchange Management Of First Security Islami Bank

3.7. Field Work and Data Collection:

Foreign Exchange Management Of First Security Islami Bank

DATA ANALYSIS OF THE STUDY

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Q.5. Researcher said-Remittance-Import-Export are interrelated. What is your say

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

FINDINGS OF THE STUDY

Foreign Exchange Management Of First Security Islami Bank

5. Findings and Analysis:

Foreign Exchange Management Of First Security Islami Bank

Chinese Yuan Renminbi

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

Foreign Exchange Management Of First Security Islami Bank

If in 3 month, spot rate is 7.4500

Unhedge company has already bought

- Unhedge company must pay:7.45 * 1,000,000= HRK 7,450,000